Personal Finance Tip of the Day

Handy Personal Finance
ISBN: 9781578593224

What is the FDIC?

  • It was set up during the Great Depression.
  • Its founding purpose was to fight the effects of bank failures.
  • It protects depositors to banks.

The FDIC or Federal Deposit Insurance Corporation was set up during the Great Depression in 1933, to fight the effects of the thousands of bank failures that happened in the years preceding. It protects depositors up to $250,000 per account holder at each institution, and guarantees this amount for every depositor at every FDIC-insured institution in the United States. In the event that a bank fails, the FDIC is the receiver, and is entrusted to pay all eligible depositors up to this amount, as well as handle the liquidation of all assets owned by the failed institution, combining them with other healthier banks, when possible, or selling them off entirely. This ensures that all Americans have complete trust in the banking system, since most Americans have substantially less money on deposit, and know that the deposits are backed by the U.S. government.

The FDIC also examines the health of the banking system by analyzing 5,160 banks, more than half of all banks in the banking system, to make sure that they have enough cash on deposit, and assessing the quality of assets and loan repayments. Whenever a bank is having difficulty, the FDIC may intervene to help the bank move toward a healthier state. If this doesn't work, the FDIC may take over the bank or merge the bank with another healthier bank.

From The Handy Personal Finance Answer Book by Paul A. Tucci, (c) 2012 Visible Ink Press(R) Answers to more than 1,000 answers to questions on personal finance, its history, and managing one's financial life.
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