WHO COVERS FDIC WHEN IT FALLS?
The Federal Deposit Insurance Corporation (FDIC) upholds public confidence in the US financial system. But what if FDIC falls as a result of bank collapses? Who will back up the corporation?
Federal Deposit Insurance Corporation
Established in 1933, the FDIC’s primary responsibilities include insuring the deposits, and protecting the depositors in insured banks and thrift institutions. This is done by determining, regulating, and addressing risks relative to the deposit insurance funds. It also limits the impact of bank failures on the economy and the financial system when a bank or thrift institution fails.
The FDIC is being funded by premiums banks and thrift institutions pay for deposit insurance coverage, as well as earnings on investments in US Treasury securities. It insures approximately $9 trillion of deposits in American banks and thrifts.
Based in Washington, D.C., this US government corporation encompasses deposits only. It excludes mutual funds, securities, or other types of investments offered by banks and thrift institutions. It also regulates over 4,500 banks and savings banks for operational safety and soundness, more than half of the institutions in America.
If FDIC collapses?
In 2008, the FDIC did not anticipate the explosion of bank failures in the height of the financial crisis. There were 25 bank failures during that year. But the FDIC noted no bank has ever lost a single coin of insured deposits. FDIC depleted its $52 billion Deposit Insurance Fund (DIF) at that time.
The DIF is funded mainly through quarterly assessments on insured banks, premiums paid by banks in insuring their deposits, and interest income on its securities. The fund is devoted to insure the deposits of consumers in FDIC-insured banks and thrifts. It pays back the money lost due to a financial institution’s failure.
In the event the fund is drained, the FDIC has $30 billion line of credit with the Department of Treasury. Should the FDIC exhaust its other options, the US government will step in to give additional financial banking. It can also borrow money from the Treasury through short-term loans.
Protect Yourself, Your Deposits
Despite the protections by the FDIC and the US government, protecting your deposits still lies on your hands. It is your best interest to be cautious and do your research to make sure your money is as safe as possible, or your hard-earned money will go to waste.
Before anything else, research the bank you are planning to put your money into. Find out if the institution is financially sound and its ratings. Banks with highest ratings have more stable financials and tend to be more flexible in their business. Read over its current financial situation, which is seen on the investor relations section of its website, as well as its financial news and events. If available, look into the institution’s financial statements.
Next, make sure the bank is insured. Not all banks in the US are FDIC-insured. You may verify the bank by looking for the FDIC logo or asking the branch manager. And check if your money is within the FDIC limit using the Electronic Deposit Insurance Estimator (EDIE) on the FDIC’s website.
The basic insurance amount is $250,000 per depositor, per bank, for every ownership ownership category. If a depositor has multiple accounts with various legal ownership in the same bank, he can be covered for more than the standard insurance amount.
Account holders can get back their funds almost immediately up to the set insured amount in case a bank collapses. If their deposits exceed the limit, depositors need to wait for the FDIC to sell off all of the bank’s assets to recover any excess. But if the assets are not sufficient to cover all deposits beyond the insurance limits, holders can receive less than the worth of their accounts. So it is best to limit your deposits.
Having said all of that, your money are safe if deposited in the right bank — and the Treasury Department and the US government will back up the FDIC.
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