FDIC

The FDIC was set up by the U.S. Federal Government in order to protect the finances of individuals who store their money in Federally protected banks and was started during the time of the Great Depression. The Great Depression was an economic recession that took place over almost the entire world. In the United States, the exact start date of the Great Depression is linked to the Stock Market Crash, October 29, 1929. This date is also referred to as Black Tuesday. When the Market crashed, there were a number of banks, 4,004, to be exact, which were forced to close. Many individuals lost their money and their investments and were left with no protection.

When these banks closed, Arthur Vandenburg, a Republican Senator, and Henry Steagall, a Democratic member of the House of Representatives, took on the task of attempting to restore the faith of the American public in banks. To accomplish this, they decided to propose the Federal Deposit Insurance Corporation (FDIC), which President Franklin D. Roosevelt approved despite the fact that he did not personally support the idea. President Roosevelt was himself a former banker and belied that the FDIC was a bad idea because it could be used to insure irresponsible bankers, not necessarily just those who legitimately needed to be protected and aided by the Federal government. With the overwhelming support of Congress, the FDIC was officially formed on June 16, 1933.

Before the bill would be passed, it was rejected by Senator Vandenburg two times. This was because the Senator was worried about the fact that there was no limit on the amount of money that was guaranteed by the Federal Deposit Insurance Corporation. The bill was eventually passed as the Glass-Steagall Deposit Insurance Act. The bank account insurance officially began January 1, 1934.

Despite the fact that President Roosevelt was opposed to the formation of the FDIC, there are a number of benefits when it comes to the bank account insurance provided by the FDIC. Different examples of bank account insurance offer different benefits to the individual and to the banks that are protected by the FDIC. Savings insurance, money insurance, and bank account insurance can be covered by the FDIC, provided that an individual's bank is protected by the FDIC. If I want to go about the process of insuring my money, I need to use the FDIC search bar online in order to make sure that my bank is a legitimate member of the FDIC-covered banks.

In the event of the bank losing a person's money, as was a very frequent event around the time of the Great Depression, the FDIC covers up to one hundred percent of $100,000 of an individual's money, and then there is a sliding scale used to cover the rest of a person's money over the first $100,000. This means that individuals from 1934 to the present time would not need to go through what many people went through during the Great Depression. Eventually, an estimated eighty-five percent of the money lost during the Great Depression was returned to individuals, but this did not make up for the fact that these individuals lost so much money and fell on such hard times. Still, it did what it could to help restore positive public opinion for banks, and the benefits are still applicable to individuals today, especially as many people in the United States today talk of a current recession. In summary, the FDIC has helped keep the economy flowing, restored public opinion in the institute of formal banks, and protected the money of individuals from being completely lost when the value of money plummets so low that it is practically negligible.

Does that make insuring my money automatic? No, individuals need to be sure that the bank they choose is one that is covered by the FDIC. Some banks that are less reputable may claim to be offering money insurance, but without assertion on the part of the FDIC, the banks cannot be trusted outright. Although it is not legal to lie about this coverage, some institutions are less reputable than others, and individuals need to make sure that the bank is covered in the event of a financial emergency or problem. To do this, individuals simply need to make sure that they use the FDIC resources available in order to confirm that their prospective bank has money insurance. This can be performed in two ways. First, an individual can call the FDIC and make a verbal request to confirm that the bank they are investigating is covered. Individuals can also make sure that they are going to be protected by going to the Federal FDIC web page and using their search bar to investigate their prospective bank. If I am a person who is questioning how I would go about initially insuring my money, this is the first step.

After the first step, it is important when considering insuring my money to make sure that the options I am interested in are covered by the FDIC. These are the instances that are covered by the FDIC. The FDIC provides money insurance for deposit accounts such as an individual's checking account, Negotiable Order of Withdrawal Accounts, also referred to as NOW accounts, and MMDA accounts, which is the acronym for Money Market Deposit Accounts. These are savings accounts that allow the owner only a limited number of checks each month to withdrawal currency. Savings insurance is covered by the FDIC for savings accounts that can be added to or withdrawn from at any given time throughout the course of the account being open, as long as there are available funds within the account. Money insurance from the FDIC also covers money market accounts, which are designed to allow money to be saved at a high rate of interest, certificates of deposits which are set up to store saved money for a set period of time without the individual being able to take the money out, and other examples of the bank's negotiable instruments, like outstanding cashier's checks and interest checks.

Although there are limits on the money insurance for an individual at one bank, different banks are insured separately. This means that if I want to go about insuring my money, but I have $300,000 to insure, I can break up the money to three different banks and I will be insured up to $100,000 at each individual bank. Money insurance from the FDIC does not go exclusively by the individual, but the individuals of different banks.

There are also some items that are specifically not covered by the bank account insurance offered by the FDIC. The Securities Investor Protection Corporation is the entity that protects many individuals' stocks, bonds, mutual funds, and their money market funds. The FDIC is not responsible for these options. Additionally, U.S. Treasury Securities and other such U.S. backed investments, contents of a safety deposit box, losses at the bank due to theft or fraud, accounting errors, and insurance products are some of the most common options not covered by the FDIC's bank account insurance.

The FDIC provides money insurance and savings insurance in order to help protect the general public of the United States of America. Although President Roosevelt had his own concerns when it came to the Federal government protecting banks, it really is a very good system that has been implemented. The economy had stalled due to the Great Depression, and individuals did not want to rely on banks any more since they had proved to be such a great disappointment when the recession of the 1920's and the 1930's hit. We need the FDIC and their money insurance in order to help make sure that these types of situations do not happen again. Individuals need to be protected from money loss when the money is kept in what is reputable and supposed to be a safe haven for finances. Although there are a number of risks that can be associated with bank account insurance, and President Roosevelt was aware of a number of them including the irresponsibility of bankers, negligent acts on the part of those making the deposits, and regulatory agencies and their interventions, there are many benefits to the FDIC that offset these potential risks. Bank account insurance helps the Federal government with deficits and pretty much single handedly runs the expenses for the private sector.

Limitations were set on the FDIC in order to not only protect banks and the finances of individuals, but to also protect the Federal government from some of the risks that were found to be inherent when it came to bank account insurance institutions. The $100,000 limit was imposed in part to keep the government protected. If an individual has more than the $100,000 limit that they want to have insured, then they are required to stash the money away in another bank account. This helps ensure that reckless bankers cannot take advantage of the government since an individual will be less likely to store $100,000 each at, for example, three different banks that are each equally irresponsible or reckless. Money insurance is, therefore, protected and found to be more likely to succeed since the Federal government protects itself and still requires the banks to be responsible, yet protected.

Bank account insurance has not been without its share of scandals. However, for the most part, the federally funded and managed corporation of bank account insurance has managed to protect itself for nearly more than a lifetime before one of the biggest scandals surfaced in 1996. Although one of the first scandals took place in the time of President Roosevelt's leadership, the public was not made aware of the situation until four years before the momentous year of 2000.

Positioned as the second head of the FDIC in 1934, Leo Crowley was a Wisconsin banker appointed by President Roosevelt. Quickly, the President learned that Crowley was embezzling from the money insurance corporation. Rather than remove Mr. Crowley, the President decided to keep Crowley at the bank account insurance corporation and worked hard to cover up the incident and keep it quiet. The President succeeded, and the general public was not made aware of the scandal until it eventually surfaced in 1996.

For a long time, there were two separate FDIC funds that helped provide the bank account insurance for the financial institutions in the United States. The FDIC funds were known as the Bank Insurance Fund, which was abbreviated as the BIF, and the Savings Association Insurance Fund, which utilized the acronym SAIF. After the Savings and Loan crisis that erupted in the 1980's, the SAIF was started and helped to back up the AIF that had already been in existence. Despite the good intentions, not all individuals were supportive of the two separate funds.

There was found to be a shift from one fund to the other, and many people believed this to be difficult and unnecessary. The premiums for the bank account insurance varied depending on what was going on at the time, and in some instances, people found themselves paying up to five times what the other fund would charge for the same coverage. This system was critiqued and discussed at length as being complicated, unnecessary, and potentially a waste of money. Federal Reserve Alan Greenspan was one of the biggest proponents of merging the two separate funds into one controllable entity. In 2006, President George W. Bush signed a reform act, the Federal Deposit Insurance Reform Act of 2005, which would effectively merge the BIF and the SAIF into one single bank account insurance fund entity.

In order for banks to take part in the bank account insurance provided by the Federal government, they need to pay premiums necessitated, as is the case with any insurance, and there are a number of separate requirements as well with which the banks need to comply. Banks are classified into five separate categories, and they need to stay within their mandated percentage or higher in order to keep the insurance. The bank is issued a warning to this effect when they start paying for their bank account insurance and savings insurance. Banks which are critically under capitalized have a risk-based capital ratio of two percent. These banks can be declared insolvent, and the FDIC can stop assisting the bank since it would be declared bankrupt or in ruin. On the other hand, banks that have a risk-based capital ratio of ten percent or higher are considered to be well capitalized, and thus a good investment for the FDIC.