The Role of Deposit Insurance (FDIC)

Here's what the FDIC is, and what it means for you

Decades ago, the currency system of the United States was backed by actual tangible deposits of gold and silver bullion. At any time, paper currency could be exchanged for an equivalent amount of metal at any federal reserve banking institution.

However, over time and as the public’s faith in the strength of the United States government increased, the number of exchanges decreased to an insignificant level. This led to the removal of the exchange rights of currency holders, and the introduction of a new potential concern; what if the banking institution holding a person’s deposits becomes insolvent?

History

The Federal Deposit Insurance Corp. (FDIC) was created by President Franklin Roosevelt with the Banking Act of 1933. This was shortly after the first monumental stock market crash and subsequent banking failure experienced in the United States.

The public’s outrage at the dramatic lack of government protection and oversight was what led President Roosevelt and his advisers to create the new federal organization.

Identification

The government created the FDIC to oversee the banking institutions in the United States. Part of this organization’s responsibility is to reassure people that their monetary deposits are safe and secure. All banking institutions in the country are constantly and repeatedly examined by the FDIC for compliance with federal regulations designed to protect the public and its money.

Function

When a bank becomes insolvent, all deposits into checking accounts, savings accounts, money markets and other banking products are replaced and refunded to the account holders, courtesy of the FDIC. The role of the FDIC is to monitor and oversee the banking industry to prevent misuse of the public’s money, and to guarantee deposits in the event that an institution makes irreparable mistakes.

Significance

Knowing that the FDIC is overseeing the banking industry in the United States brings many citizens a sense of comfort and relief that is necessary to keep the economy moving forward.

A great many Americans have a fear of the financial industry and lack proper understanding of the monetary systems at work in this country. However, the simple knowledge that a federal authority is charged with protecting the money and insuring the deposits is enough to relax most consumers.

Benefits

The FDIC insures all deposit accounts and retirement accounts at banking institutions up to $250,000. There is no limit to the number of accounts a person may have, but the $250,000 limit is an aggregate for each individual at each institution for each account type. People with accounts at multiple banks will receive equal protection under FDIC regulations.

References

Are My Deposits Insured?
FDIC Office of the Inspector General

Resources (Further Reading)

My FDIC Insurance

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This article is a Twisted Nonsense Exclusive! (09/15/2009)