FDIC and NCUA Deposit Insurance: Financial Reform Makes $250,000 Limit Permanent

FDIC Insurance Limits Increase Permanent

The Federal Deposit Insurance Corporation is a corporation that acts as an independent agency of the federal government. The primary responsibility of the corporation is to act as a insurer for consumer deposits at banks and to help protect the economy at large from the effects of bank failures. The FDIC insures deposits up to $250,000 per depositor per insured bank.

The FDIC was created as a result of the Glass-Steagall Act of 1933, in the midst of the Great Depression. The Roosevelt Administration wanted a way to make sure that depositors could be safe from the fear of losing their deposits if their bank failed. The FDIC was created to remedy that fear by insuring bank deposits against the risk of bank failure. Since the FDIC’s inception on January 1, 1934, no depositor has lost a single cent of insured deposits from the failure of their bank.

FDIC insurance is basically a guarantee that depositors will not lose their funds. If the bank where they keep their money fails, the FDIC guarantees that they will receive the full amount of those funds, up to the insurance limit, from the FDIC’s insurance fund. FDIC insurance protects depositors from the risk of bank failure and makes the banking industry safer for consumers.

The Great Depression highlighted the need for an institution like the FDIC. During the first ten months of 1930 after the catastrophic stock market crash of 1929, seven hundred and forty-four banks failed, ten times the annual number during the 1920s. By the end of 1933, over one hundred and forty billion dollars in deposits had been lost to bank failures, and eleven thousand of the twenty-five thousand largest banks had failed. This severe crisis prompted a response from the Roosevelt Administration, which passed the Glass-Steagall Act of 1933. The Act established the FDIC and funded it. The initial limit on deposit insurance was set at $2,500 in 1934, and was raised to $5,000 in 1935.

The FDIC was given the first real test of its abilities during the savings and loan crisis of the 1980s. Although the brunt of the crisis fell upon the Federal Savings and Loan Insurance Corporation, the pressure was too great, and the FSLIC became insolvent and was merged into the FDIC. Between 1980 and 1994, the FDIC helped to close over sixteen hundred banks that had been affected by the crisis. Fortunately, the FDIC survived and helped mitigate the worst effects, although the crisis still cost taxpayers an estimated $150 billion.

The FDIC works in tandem with other government agencies to protect the customers of other financial institutions, such as credit unions. The National Credit Union Administration, or NCUA, is the independent federal agency that charters and supervises federal credit unions. The NCUA and FDIC together insure billions of dollars worth of deposits at thousands of financial institutions throughout the United States.

With the passage of the Wall Street Reform and Consumer Protection Act on July 21, 2010, the FDIC insurance limits of $250,000 per depositor per insured bank has been made permanent. The $250,000 limit had been temporarily set up during 2008 and then extended to 2013, but the new financial reform law makes the limit permanent in an effort to increase consumer confidence in the banking system.

The ongoing financial crisis of 2008 has resulted in many changes to the financial system. The FDIC has protected bank customers since 1934, and it continues to do so. Even though over two hundred banks have failed since 2008, the FDIC has protected the consumers of all of them.

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