Federal Deposit Insurance Corporation (FDIC)

Federal Deposit Insurance Corporation (FDIC), independent agency of the United States government created in 1933 under a section of the Federal Reserve Act to insure deposits in banks in the event of bank failure. In 1950 the section of the act concerning the corporation was amended and made a separate law, the Federal Deposit Insurance Act. The act provides up to $100,000 insurance for each depositor in an insured bank. A new set of amendments to the act, which went into effect in April 2006, provides insurance up to $250,000 on individual retirement accounts (IRAs) held at banks and savings associations insured by the FDIC and at credit unions insured by the National Credit Union Administration (NCUA).

All banks that meet the standards for membership in the Federal Reserve System automatically become insured by the corporation; included are national banks chartered by the comptroller of the currency under federal law and state-chartered banks that obtain membership in the system. State-chartered banks, including mutual savings institutions that are not members, may become insured if they meet the prescribed qualifications for insurance.

In 1989 the Financial Institutions Reform, Recovery, and Enforcement Act abolished the Federal Savings and Loan Insurance Corp. (FSLIC) and transferred its functions to the FDIC. The FDIC now administers two separate deposit insurance funds: the Bank Insurance Fund for commercial banks and the Savings Association Insurance Fund for thrift institutions formerly insured by FSLIC.

The major functions of the corporation are to pay the depositors if an insured bank closes without adequate resources to pay claims of its depositors; to act as receiver for all suspended national banks and for suspended state banks if state authorities so request; and to prevent the development or continuance of unsound banking practices. The corporation may also make loans to or purchase assets from insured banks to facilitate a merger or consolidation if such action will prevent or reduce loss to the corporation or if the continued operation of a distressed bank is deemed essential to provide adequate banking services in a community. The corporation also regularly examines insured banks that are not members of the Federal Reserve System and prescribes rules governing the payment and advertising of interest on deposits.

The most recent changes to the Federal Deposit Insurance Act raised the insurance amount from $100,000 to $250,000 for an IRA account and for other types of retirement accounts. Other types of accounts are self-directed Keogh accounts, “457 Plan” retirement accounts used by state government employees, and self-directed 401(k) accounts (see Retirement Plans). All IRA accounts were covered by these changes, including traditional and Roth IRAs. These changes went into effect on April 1, 2006. Under the new rules, all deposits at the same FDIC-insured bank or NCUA-insured credit union that are held in these types of retirement accounts are insured up to $250,000. This amount is separate from other deposit accounts held at the same institution, which are still insured up to $100,000.

The IRAs must be invested in bank deposits, such as certificates of deposit (CDs). The FDIC does not insure mutual funds, stocks, bonds, or annuities sold through banks or savings associations.

The new changes also established a method for considering increases in insurance limits on all deposit accounts. Beginning in 2011, the FDIC will consider raising insurance limits every five years. The considerations will be based, in part, on the rate of inflation.

The FDIC is managed by a five-member board of directors. All are appointed by the president and confirmed by the Senate. No more than three can be from the same political party. The FDIC is headquartered in Washington, D.C., and has six regional and field offices around the country.