The Creation of the Federal Deposit Insurance Corporation (FDIC)

Historical Context

The Great Depression of the 1930s had a devastating impact on the American banking system, leading to widespread bank failures and loss of public confidence. In response to this crisis, the federal government enacted the Banking Act of 1933, which established the Federal Deposit Insurance Corporation (FDIC).

Purpose and Mission

The primary purpose of the FDIC was to restore public confidence in the banking system by insuring deposits up to a certain amount. This was intended to prevent bank runs and promote financial stability. The FDIC’s mission has remained largely unchanged since its inception, with the goal of protecting depositors and reducing the economic disruptions caused by bank failures.

Key Provisions

The Banking Act of 1933 established several key provisions for the FDIC:

• Deposit InsuranceThe FDIC provided deposit insurance to depositors in member banks, initially covering up to $2,500 per depositor.
• MembershipBanks that were members of the Federal Reserve automatically became FDIC members. Nonmember state-chartered banks could also qualify for membership in the Temporary Fund upon application and examination.
• SupervisionThe FDIC became the federal supervisor for state nonmember banks, which were previously subject only to state supervision.
• Failed Bank ResolutionThe FDIC was required to be the receiver when a national bank failed. It could also serve as the receiver when state-chartered banks failed, although it took some time before the FDIC routinely served in this capacity.

Funding and Capitalization

The FDIC’s initial capital of approximately $289 million was provided by the U.S. Treasury and the 12 Federal Reserve Banks. This funding was used to cover the costs of deposit insurance and bank closures.

Impact and Legacy

The creation of the FDIC had a significant impact on the American banking system. It restored public confidence in banks, prevented widespread bank runs, and helped stabilize the financial system. The FDIC has continued to play a vital role in maintaining the safety and soundness of the banking system, protecting depositors, and reducing the economic consequences of bank failures.

Sources

• FDIC: History of the FDIC
• FDIC: History of Deposit Insurance: 1930-1939
• The Federal Deposit Insurance Corporation: Its First Fifty Years

FAQs

When was the FDIC created?

**Answer:** The FDIC was created on June 16, 1933, with the signing of the Banking Act of 1933 by President Franklin D. Roosevelt.

Why was the FDIC created?

**Answer:** The FDIC was created to restore public confidence in the banking system, which had been severely shaken by bank failures during the Great Depression.

What was the initial deposit insurance coverage level?

**Answer:** The initial deposit insurance coverage level was $2,500 per depositor.

Who provided the FDIC’s initial capital?

**Answer:** The FDIC’s initial capital of approximately $289 million was provided by the U.S. Treasury and the 12 Federal Reserve Banks.

What types of banks were eligible for FDIC membership?

**Answer:** Banks that were members of the Federal Reserve automatically became FDIC members. Nonmember state-chartered banks could also qualify for membership in the Temporary Fund upon application and examination.

What was the FDIC’s role in supervising banks?

**Answer:** The FDIC became the federal supervisor for state nonmember banks, which were previously subject only to state supervision.

What was the FDIC’s role in resolving failed banks?

**Answer:** The FDIC was required to be the receiver when a national bank failed. It could also serve as the receiver when state-chartered banks failed, although it took some time before the FDIC routinely served in this capacity.

How has the FDIC evolved since its creation?

**Answer:** The FDIC has continued to evolve over time, expanding its deposit insurance coverage, taking on new responsibilities in bank supervision and resolution, and adapting to changes in the financial system.