Federal Deposit Insurance Corporation (FDIC)

The Federal Deposit Insurance Corporation (FDIC) is an independant agency that exists to convince the public that FDIC-insured deposit accounts are a safe store of value. The standard FDIC insurance amount is $250,000 per depositor, per bank, for each account ownership category.

Whether the FDIC can cover all the depositors it purports to insure is highly disputed. Some reports claim that the FDIC can merely afford to cover deposit accounts at a few of the largest banks.

During the Great Depression, banks failed. Borrowers defaulted on loans for margin investing, mortgages, and other lines of credit. Bank assets had fallen below liabilities for many years, and they could no longer meet fiduciary duties. Running out of cash amidst widespread panic caused bank runs and consumer frustration with central banking instability.

FDIC insurance began in 1934 to restore trust despite the vulnerabilities of a centralized banking system. Since then, no FDIC account has lost insured funds due to a bank failure. Taxpayer money does not fund the FDIC. Instead, banks and savings institutions pay an insurance premium to become FDIC members. Riskier entities pay a higher premium to the fund.

The FDIC must maintain liquidity in a contingent reserve to cover probable account failures for a 12 month period. The FDIC can generate cash flow by selling the assets of failed banks, charging special fees, and advancing premiums. In theory, 12-month contingent reserves and readily accessible cash mean that even when the FDIC is negative on a balance sheet, it can still protect deposit accounts.