The Federal Deposit Insurance Corporation is an American government company that provides deposit insurance to depositors in US commercial banks and savings agencies. The FDIC was created by the Banking Act of 1933, applicable during the Great Depression to restore confidence in the American banking system. More than a third of the banks failed in the years before the creation of the FDIC, and banks were running public. The insurance limit was initially US $ 2,500 per property category, and this increased several times over the years. Since the issuance of Dodd-Frank Wall Street Reform and the Consumer Protection Act in 2011, FDIC guarantees deposits in member banks up to US $ 250,000 per property category.
FDIC and its reserves are not funded by public funds; membership bank insurance is the main funding source of FDIC. FDIC also has a credit line worth US $ 100 billion with the US Treasury. Only banks insured by the FDIC; credit unions are insured to the same insurance limit by the National Credit Union Administration, which is also a government institution.
Until the end of 2017, FDIC provides deposit insurance in 5,670 institutions. The FDIC also examines and monitors certain financial institutions for safety and health, performs certain consumer protection functions, and manages the curators of failed banks.
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Ownership categories
Each deposit ownership category is insured separately up to the insurance limit, and separately in each bank. So a depositor with $ 250,000 in each of the three categories of holdings in each of the two banks will have six different insurance limits of $ 250,000, for a total coverage of 6 ÃÆ'â € "$ 250,000 = $ 1,500,000. The different ownership categories are
- Single account (account not belonging to any other category)
- Certain retirement accounts (including Individual Retirement Account (IRA))
- Joint accounts (accounts with more than one owner with equal rights to withdraw)
- A cancelable trust account (containing the words "Can be paid on death", "In trust for", etc.)
- A non-cancelable trust account
- Employee Benefit Plans account (deposit of pension plan)
- Unincorporated Associated Partners/Cooperation/Account
- Government accounts
All amounts held by certain depositors in accounts in certain categories of ownership in a particular bank are added together and insured up to $ 250,000.
For joint accounts, each joint owner is assumed (unless the account specifically states otherwise) to have the same fraction of the account as each other's co-owners (though each co-owner may be eligible to withdraw all funds from that account ). So if three people together have a $ 750,000 account, the entire account balance is insured because each $ 250,000 account from the saver is insured.
The owner of a cancelable trust account is generally insured up to $ 250,000 for each unique beneficiary (subject to special rules if there are more than five of them). So if there is one account owner assigned as trust for (payable on death for, etc.) Three different recipients, funds in the account are insured up to $ 750,000.
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Board of directors
The FDIC Board of Directors is the governing body of the FDIC. The Council is made up of five members, three appointed by the president of the United States with the approval of the United States Senate and two ex officio members. Three appointed members each serving a period of six years. No more than three board members may have the same political affiliation. The President, with the approval of the Senate, also appoints one of the members appointed as chairman of the board, to serve a five-year term, and one of the members appointed as deputy chairman of the board. Two ex officio members are the Currency Financial Supervisor and director of the Consumer Financial Protection Bureau (CFPB).
In May 2018, members of the Board of Directors of the Federal Deposit Insurance Corporation are:
- Jelena McWilliams - Chairman of the Board
- Empty - Vice Chair
- Martin J. Gruenberg - Independent Director
- Joseph Otting - Financial Currency Supervisor
- Mick Mulvaney - Acting Director, Consumer Financial Protection Bureau
History
Panics of 1893 and 1907 and the Great Depression: 1893-1933
During the Panics of 1893 and 1907, many banks filed for bankruptcy because the bank runs due to infectious diseases. Both panics renewed the discussion of deposit insurance. In 1893, William Jennings Bryan presented a bill to Congress proposing a national deposit insurance fund. No action was taken, as the legislature paid more attention to agricultural depression at the time.
After 1907, eight countries established a deposit insurance fund. Due to loose bank regulations and the inability of banks to transact; small local unit banks - often with poor financial health - grow in large numbers, especially in western and southern states. In 1921, there were about 31,000 banks in the US. The Federal Reserve Act initially included provisions for national deposit insurance, but was removed from the bill by the House of Representatives. From 1893 to the creation of the FDIC in 1933, 150 bills were filed in Congress to file for deposit insurance.
There is widespread panic over the American banking system due to concerns over the power of many banks in The Great Depression; more than a third of all US banks are closed by bank runs. The bank runs, a sudden demand by a large number of customers to withdraw all their funds at almost the same time, breaking down many bank companies because depositors are trying to attract more money than banks are available for cash. Small banks in rural areas are severely affected. Written recognition and public announcement and regulations tightened by the government fail to reduce the fears of depositors.
Establishment of FDIC: 1933
President Franklin D. Roosevelt himself doubted about insuring bank deposits, saying, "We do not want to make the United States Government responsible for the errors and faults of each bank, and provide a premium on unhealthy banking in the future." But public support is very supportive, and the number of bank failures drops to near zero. On June 16, 1933, Roosevelt signed the Banking Act of 1933 into law, creating the FDIC. The initial plan established by Congress in 1934 was to secure deposits of up to $ 2,500 ($ 45,734 today) by adopting a more generous long-term plan after six months. However, the last plan was abandoned due to the increase of the insurance limit to $ 5,000 ($ 91,468 today).
Banking Act 1933:
- Set up FDIC as a temporary government company. The Banking Act of 1935 made the FDIC a permanent government agent and provided permanent deposit insurance that was maintained at the $ 5,000 level.
- Grant FDIC authority to provide bank deposit insurance
- Giving FDIC the authority to regulate and supervise non-member state banks
- Fund FDIC with an initial loan of $ 289 million through US Treasury and Federal Reserve, which is then repaid at interest
- Extended federal supervision for all commercial banks for the first time
- Separate commercial and investment banking (Glass-Steagall Act)
- Banks that are prohibited from paying interest to check accounts
- Bringing a national bank to a statewide branch, if permitted by state law.
Historical insurance limit
- 1934 - $ 2,500
- 1935 - $ 5,000
- 1950 - $ 10,000
- 1966 - $ 15,000
- 1969 - $ 20,000
- 1974 - $ 40,000
- 1980 - $ 100,000
- 2008 - $ 250,000
Congress approved a temporary increase in the deposit insurance limit from $ 100,000 to $ 250,000, effective from October 3, 2008, to December 31, 2010. On May 20, 2009, the temporary increase was extended to 31 December 2013. However, the Dodd-Frank Wall Street Reform and The Consumer Protection Act (PL111-203), which was signed into law on 21 July 2010, created a permanent $ 250,000 insurance limit. Additionally, the Federal Deposit Insurance Reform Act of 2005 (PL109-171) allows for the FDIC board and the National Credit Union Administration (NCUA) to consider inflation and other factors every five years beginning in 2010 and, where necessary, to adjust the amount under the formula specified.
S & amp; L and the bank crisis of the 1980s
Federal deposit insurance received the first large-scale test since the Great Depression in the late 1980s and early 1990s during the savings and loan crisis (which also affected commercial banks and savings banks).
Federal Savings and Credit Insurance Companies (FSLIC) have been created to guarantee deposits held by savings and loan institutions ("S & Ls", or "thrifts"). Because of the meetings, many of the S & P industries are bankrupt, and many big banks are also in trouble. FSLIC reserves are insufficient to pay off the depositors of all failed schemes, and fall into bankruptcy. The FSLIC was abolished in August 1989 and replaced by Resolution Trust Corporation (RTC). On December 31, 1995, the RTC was merged into the FDIC, and the FDIC became responsible for resolving the failure. Supervision of thrifts becomes the responsibility of new agencies, the Office of Goods Supervision (formerly Credit Unions remains insured by the National Credit Union Administration). The main legislative response to the crisis was the Reform of the Financial Institution, Recovery and Enforcement Act of 1989 (FIRREA), and Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). Federal diplomatic thrifs are now regulated by the Office of Financial Currency Supervisory (OCC), and the state notebook by the FDIC.
The final combined total for all direct and indirect FSLIC and RTC losses is about $ 152.9 billion. Of this total, US taxpayers' losses amounted to approximately $ 123.8 billion (81% of total costs.)
No taxpayer money is used to settle the FDIC insured institutions.
2008-2010 Financial crisis
2008
In 2008, twenty-five US banks became bankrupt and closed by their respective leasing authorities. However, during the year, the biggest bank failure in terms of dollar value occurred on September 26, 2008, when Washington Mutual, with $ 307 billion in assets, experienced a 10-day bank running on deposits.
FDIC creates a Temporary Liquidity Assurance Program (TLGP) to strengthen confidence and encourage liquidity in the banking system by guaranteeing new unsecured senior debt, banks and certain parent companies, and by providing full coverage of non-interest deposit account transactions, regardless of dollar amount.
The deposit insurance limit is temporarily raised from $ 100,000 to $ 250,000.
2009
On August 14, 2009, Bloomberg reported that more than 150 public lenders in the US have bad loans in excess of 5% of their total holdings. This is important because the former regulator said that this is a level that can erase bank equity and threaten its survival. Although this ratio does not necessarily lead to bank failures if the bank has raised its capital and has properly established reserves for bad debts, this is an important indicator for future FDIC activities.
On August 21, 2009, Guaranty Bank, in Texas, went bankrupt and was taken over by BBVA Compass, the US division of Banco Bilbao Vizcaya Argentaria, the second largest bank in Spain. This was the first foreign company to buy a bank that failed during the credit crunch of 2008 and 2009. In addition, the FDIC agreed to share losses with BBVA on approximately $ 11 billion of loans and other assets from Guaranty Bank. This transaction alone costs FDIC Deposit Insurance Fund $ 3 billion.
On August 27, 2009, FDIC increased the number of problem banks to 416 in the second quarter. That number compared with 305 just three months earlier. By the end of the third quarter, that number jumped to 552.
At the close of 2009, a total of 140 banks have become bankrupt. This is the largest number of bank failures in a year since 1992, when 179 institutions failed.
2010
On February 23, 2010, FDIC Chairman Sheila Bair warned that the number of failures in 2010 could surpass 140 banks seized in 2009. Overexposure commercial real estate is considered the most serious threat to banks in 2010.
As of April 30, 2010, FDIC was named as the recipient of three banks in Puerto Rico at a cost of $ 5.3 billion.
In 2010, 157 banks with total assets of about $ 92 billion failed.
In 2010, a new division within the FDIC, the Office of the Financial Institutions Complex, was created to focus on FDIC responsibilities extended by the Dodd-Frank Act for risk assessment at the largest and systemically important financial institution, or SIFIs.
Fund
Former funds
Between 1989 and 2006, there were two separate FDIC funds - the Bank Insurance Fund (BIF), and the Savings Association Insurance Fund (SAIF). The latter was established after the savings and loan crisis of the 1980s. The existence of two separate funds for the same purpose causes the bank to try to switch from one fund to another, depending on the benefits each can provide. In the 1990s, the SAIF premium, at one point, was five times higher than the BIF premium; some banks are trying to qualify for BIF, with some merging with institutions eligible for BIF to avoid higher premiums from SAIF. This raises the BIF premium as well, resulting in a situation where both funds charge a higher premium than necessary.
Then Federal Reserve Chairman Alan Greenspan is a system critic, saying, "We are, in effect, trying to use the government to enforce two different prices for the same item - that is, government-mandated savings insurance." Such price differences only make efforts by the offender market to change the difference. "Greenspan proposed" to end this game and combine SAIF and BIF ".
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In February 2006, President George W. Bush signed the Federal Deposit Insurance Reform Act of 2005 (FDIRA) and related adjustment amendments. FDIRA contains technical changes and adjustments to implement the deposit insurance reform, as well as a number of study and survey requirements. Among the most interesting of these laws is the incorporation of the Bank Insurance Fund (BIF) and the Savings Association Insurance Fund (SAIF) into new funds, Deposit Insurance Fund (DIF). This amendment was made effective on March 31, 2006. The FDIC maintains the DIF by assessing the depository institution as an insurance premium. The amount of each institution is valued based on both the secured deposit balance and the level of risk incurred by the institution against the insurance fund.
When the bank becomes bankrupt, the FDIC is appointed as the recipient of the failed institution. As a recipient, the FDIC takes ownership of the assets of the failed institution and liquidates them; and as a guarantor of deposits paying obligations deposits of failed institutions or pay other agencies to bear it. Because the assets of failed institutions are almost always worth less than their deposit obligations, bank failures cause losses to DIF.
Payment of interest on bonds from Financing Corporations, financing vehicles for "Funds Resolutions" from the now-non-operating Federal Fund and Lending Agencies (FSLIC) funded by the DIF premium.
A March 2008 memorandum to the FDIC board of directors showed the balance of the Deposit Guarantee Fund at the end of 2007 of approximately $ 52.4 billion, representing a reserve ratio of 1.22% of its exposure to the insured deposit, totaling approximately $ 4.29 trillion. Guaranteed deposits in late 2008 are projected at about $ 4.42 trillion with reserves growing to $ 55.2 billion, a 1.25% ratio. In June 2008, DIF had a balance of $ 45.2 billion. However, 9 months later, in March 2009, the DIF fell to $ 13 billion. It was the lowest since September, 1993 and represents a 0.27% reserve ratio of its exposure to an insured deposit of about $ 4.83 trillion. In the second quarter of 2009, the FDIC imposed emergency expenses aimed at raising $ 5.6 billion to fill DIF. However, Saxo Bank Research reported that, after August 7, bank failures further reduced the DIF balance to $ 648.1 million.
The FDIC announced its intention, on September 29, 2009, to assess the bank, in advance, for a three-year premium in an effort to avoid DIF insolvency. The FDIC revised the estimated cost of bank failures to about $ 100 billion over the next four years, an increase of $ 30 billion from an estimated $ 70 billion in early 2009. The FDIC Board chose to ask the insured bank to pay a $ 45 billion premium to refill the funds. The news media reported that prepayment measures are inadequate to ensure financial stability of FDIC insurance funds. The FDIC chooses to require prepayment so that banks can recognize a fee for three years, rather than withdrawing the bank's official capital unexpectedly, at the time of the appraisal. The Fund is mandated by law to maintain a balance equivalent to 1.15 percent of guaranteed deposits. As of June 30, 2008, the insured bank has approximately $ 7.025 billion in deposits, although not all of them are insured. As of September 30, 2012, total deposits in FDIC-insured institutions amounted to approximately $ 10.54 trillion, although not all deposits were insured.
DIF backup is not the only cash resource available for FDIC. In addition to the $ 67.3 billion in cash and US Treasury securities owned by March 2016, the FDIC has the ability to borrow up to $ 100 billion from the Treasury. The FDIC may also request a special rating from the bank as it did in the second quarter of 2009.
"Faith and Full Credit"
The official FDIC teller sign, installed at every insured US bank and asset association, states that FDIC deposit insurance "is supported by full confidence and credit from the United States government." The FDIC describes this mark as a symbol of trust for depositors. As part of a 1987 legislative decision, Congress issued a move stating "it is a sense of congress that they must reaffirm that deposits up to the amount prescribed by law at a federal insurance depository agency backed by full confidence and credit from the United States.. "
Insurance requirements
To receive these benefits, member banks must follow certain liquidity and reserve requirements. Banks are classified into five groups according to their risk based capital ratios:
- Capitalization well: 10% or higher
- Capitalization is enough: 8% or higher
- Unfilled: less than 8%
- Significant lack of capital: less than 6%
- Critically undercapitalized: less than 2%
When the bank becomes a capital shortage, the agency's main regulator issues a warning to the bank. When the number falls below 6%, the main regulator can change management and force the bank to take other corrective actions. When a bank becomes severely underfunded, the charter authority closes the agency and appoints the FDIC as a bank recipient.
In Q4 2010 884 banks had very low capital cushions against risk and were on the FDIC "problem list".
bankrupt bank resolution
The chartering authority of the bank - either the individual state banking department or the US Currency Office - closes the bank and appoints the FDIC as the recipient. In its recipient role, the FDIC is in charge of protecting depositors and maximizing recovery for failed institutional creditors. FDIC does not close the bank.
FDIC as the recipient is functionally and legally separate from the FDIC acting in the role of the company as deposit guarantor, and the FDIC as the recipient has separate rights, obligations and obligations from those of the FDIC as the guarantor. The court has long recognized this dual and separate capacity.
In 1991, to comply with the law, the FDIC changed its failure resolution procedure to reduce the costs to the deposit insurance fund. The procedure requires the FDIC to select the least expensive resolution alternative to savings funds of all possible methods for completing failed institutions. Bid submitted to FDIC where they are reviewed and the smallest cost determination made.
A curator is designed to market the assets of the failed institution, liquidate them, and distribute the proceeds to the institution's creditors. FDIC as a recipient successfully the rights, powers, and privileges of the institutions and their shareholders, officers, and directors. FDIC may collect all liabilities and money due to the agency, preserve or liquidate its assets and property, and perform other functions of the institution consistent with its appointment.
The recipient also has the power to incorporate failing institutions with other insured depository institutions and to transfer assets and liabilities without the consent or consent of any agency, court or other party with contractual rights. Furthermore, the recipient may establish a new institution, such as a bridge bank, to take over the assets and liabilities of the failing agency, or may sell or pledge the agency's assets to the FDIC in its enterprise capacity.
The two most common ways for FDIC to complete a closed institution and fulfill its role as a recipient are:
- Purchase and Assumption Agreements (P & amp; A), where deposits (liabilities) are assumed by an open bank, which also buys part or all of the failed bank loans (assets). Bank assets submitted to FDIC as recipients are sold and auctioned through various methods, including online, and contractor use.
- Payoff Deposit , as soon as the appropriate charter authority closes the bank or savings, the FDIC is designated as the recipient. FDIC as a guarantor pays all depositors of failed institutions with funds insured the full amount of their insured deposits. Deposits with uninsured funds and other general creditors (such as suppliers and service providers) of the failing agency do not receive direct or full reimbursement; instead, FDIC as the recipient issues the certificate of the receiver. The curator certificate grants the holder to a portion of the recipient's collection on failed agency assets.
Insurance Foundation Resolution Plan Insured Insured
To assist the FDIC in solving insolvent banks, FDIC requires a plan including the submission of a resolution plan requested by the requirements of a protected institution under the Dodd Frank Act. In addition to the Bank Holding Company ("BHC") resolution plan required under the Dodd Frank Act pursuant to Section 165 (d), the FDIC requires a separate Insured Insured Depository Institution ("CIDI") insured plan for US insured deposits with $ 50 billion or more. Most of the largest and most complex BHCs are subject to both rules, requiring them to file a 165 (d) resolution plan for BHC that includes BHC's core business and its most significant subsidiaries (ie "material entities"), as well as one or more CIDI plans depend on the number of subsidiaries of US banks from BHC that meet the $ 50 billion asset threshold.
On December 17, the FDIC issued a guide to the 2015 resolution plan of CIDI of major bank holding companies (BHCs). This guide provides clarity on the assumptions that should be made in the CIDI resolution plan and what should be addressed and analyzed in the 2015 CIDI resolution plan including:
- The assumption that CIDI should fail.
- The cause of CIDI failure should be a loss or decrease in core business.
- At least one "double collector strategy" is required in the plan.
- The deep granularity rate is expected in the plan.
- The sales strategy should be feasible and supported by the large details of the acquirer.
- Detailed financial and liquidity analysis is required.
- Major legal issues should be considered.
- The resolution constraint must be resolved.
- CIDI must be bankrupt at the beginning of the resolution.
Products that are insured
FDIC deposit insurance includes deposit accounts, which, by FDIC definition, include:
- giro (a checking account of a type that was previously unable to pay interest legally), and a negotiable withdrawal order (NOW account, that is, a savings account that has write-check rights)
- savings accounts and money market deposit accounts (MMDA, ie, higher-interest savings accounts subject to write restrictions)
- deposits include certificates of deposit (CD)
- extraordinary checkout checks, interest checks, and other negotiable instruments withdrawn in bank accounts
- accounts in foreign currency
Accounts in different banks are insured separately. All branches of banks are considered to form a single bank. Also, an Internet bank that is part of a brick and mortar bank is not considered a separate bank, even if its name is different. Non-US citizens are also protected by FDIC insurance as long as their deposits are in the domestic offices of the bank insured FDIC.
The FDIC publishes a guide entitled "Deposits of Your Insured", which establishes the general characteristics of the FDIC deposit insurance, and addresses common questions raised by bank customers regarding deposit insurance.
Uninsured items
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