Who is the Federal Deposit Insurance Corporation?
The FDIC was created in 1933 in response to a wave of bank failures. It is an independent federal agency insuring deposits in the US and as of 2020, insuring deposits of up to $250,000 with affiliated banks. The organization was established by the US Congress to help stabilize the US economy and boost national and international confidence in the banking system.
The FDIC employs more than 5,000 professionals across multiple US-based offices, with an annual budget of $2.2 billion. Up until early 2022 Trump-appointed Jelena McWilliams was the head of the organisation, but has since resigned due to issues with other directors on the board. The FDIC head offices are in Washington, D.C, with other regional offices in Atlanta, Boston, Chicago, Dallas, Kansas City, New York and San Francisco.
The FDIC Board of Directors is made up of 5 members, 3 of which are appointed by the President, and 2 appointed by the United States Senate. As a rule, only 3 members of the board are allowed to have the same political affiliation. The structure of the organization is created to provide an unbiased approach to overseeing the US banking industry.
Member banks are the primary source of funding for the FDIC, as opposed to public funding.Furthermore, to offer stability, the FDIC has a line of credit from the United States Treasury Department that is $100 billion.
What is the Federal Deposit Insurance Corporation responsible for?
In this section we will elaborate on how the FDIC helps to protect customers through their affiliation with member banks. Customers making international money transfers to or from the US will benefit from the following FDIC jurisdiction.
Protection against bank failure
When a bank is not managed correctly or, due to unforeseen financial circumstances, goes bankrupt, instability in the financial system is created. The process also leaves bank customers with no access to their funds. The FDIC was created to offer depositors help, in the form of insurance, if a bank fails. Further to this, the organization defaults to official spokesperson in cases where depositors need information following a bank's closure.
In the event of a bank failure the FDIC may distribute customer assets with another member bank that is financially healthy. However, if this is not possible, the FDIC will pay out the funds directly to customers.
The Federal Deposit Insurance Corporation covers:
Money market deposit accounts
Time deposits, such as CDs
Negotiable Order of Withdrawal (NOW) accounts
Bank-issued cashier’s checks and money orders
The Federal Deposit Insurance Corporation does not cover:
Stocks and bonds
Federal or municipal securities
Safe deposit boxes or their contents
Furthermore, the FDIC is not responsible for cybercrime and fraud. Depositors should seek help from separate insurance providers for such losses. It is important to understand what is covered in case any unfortunate financial events take place.
Covers $250,000 in deposits
In 1934 the depositor insurance limit was $5,000 per account but this limit was raised to $100,000 in 1980. Eventually this limit was deemed too low so, in 2010, it was permanently increased to $250,000.
As it stands, the FDIC covers deposits of $250,000 up to 6 times for a depositor with up to 6 different bank accounts. These include the following types of accounts:
Certain retirement accounts
Revocable trust accounts
Irrevocable trust accounts
Employee benefit plan accounts
Unincorporated association or partnership
However, the depositor will only have coverage of up to 2 accounts per bank. Therefore, in total, each depositor may receive insurance for up to $1,500,000 depending on how their finances are spread out and the type of accounts held.
Educating the public
The FDIC provides educational material to help consumers better understand money and any potential risks facing US banking systems, with a view to arm the general public with a basic understanding of how banks work and manage money. This typically covers the following 3 areas:
Helps customers find out if their bank is a member of the FDIC Insured network
Providing a calculator that helps account holders estimate the amount of money insured: this tool allows for the running of various scenarios to determine what amount customers receive in the event of bank closure
Providing links to non-profit and government organizations that offer assistance with areas such as credit reports, cybersecurity and basic personal finance
Finally the FDIC is responsible for informing consumers of any previous banks that have failed. Learning about the history of bank failures is a reliable way of understanding threats and vulnerabilities of the US banking system.
Why is the Federal Deposit Insurance Corporation needed?
The FDIC is important because it can prevent and remedy great loss of funds. Bank customers are generally not aware of what is going on behind the scenes: their chosen financial institution may appear to be doing well financially but in reality, preparing to close its doors due to poor management. The FDIC offers banking customers peace of mind, by ensuring their money is insured no matter what happens to the bank. For this reason, FDIC Insured banks are safe to use for international money transfers as funds are protected.
One area the FDIC helps with is consumer confidence in a bank, which can lead to a healthier national banking system. Customers do not need to withdraw cash at the first sign of trouble if they are insured by the FDIC.
What regions does the Federal Deposit Insurance Corporation cover?
The FDIC is a US government organization and therefore covers banks in the United States only. This being said, not all US banks are covered by the FDIC, since the insurance is limited to 5,100 member banks.
Therefore, customers that do not have a US bank account or do not plan to use one for international money transfers, will not benefit from depositor insurance provided by the FDIC.
We urge readers to consider using one of the member banks that are covered by the FDIC if you plan on executing large transfers in and out of the US.
When might you encounter the Federal Deposit Insurance Corporation?
The FDIC comes into play immediately after a bank folds. The organization can be contacted as soon as a bank files for bankruptcy or an insurance claim.
Contact can be made via phone (+1 877-275-3342) or making a claim through the official FDIC website. Customers filing a claim will receive personalized help at no extra cost.
For instance, say you have a retirement account that holds $250,000 and a joint account holding a total of $500,000, both of which are covered by FDIC Insurance. The combined value of $750,000 would be covered by the depositor’s insurance policy as long as the bank in question is part of the FDIC network.
How to contact the Federal Deposit Insurance Corporation?
You may need to contact the FDIC when your bank goes bankrupt or if you have any other relevant concerns.
Phone: +1 877-275-3342 (1-877-ASKFDIC); this is a toll-free number available 8:30 am to 4:30 pm, Monday to Friday
Form: Use the online form to submit questions or make a claim; you will receive a response via email
In conclusion, this government-owned organization provides US bank account holders with depositor insurance of up to $250,000 up to a maximum of 6 times. It helps place confidence in the US banking system and gives regular customers peace of mind that their money is safe.
Whether you are receiving or sending money with US banks, the FDIC plays a crucial part in ensuring funds are protected in the event of any of the involved banks going bankrupt. It is worth considering an FDIC affiliated bank when opening a bank account in the US, to give peace of mind in a worst-case scenario.
For more information about How Safe a Bank Transfer Is check out our guide on the subject, in addition to our other useful Money Transfer Guides.