Orlando Harmon
The Federal Deposit Insurance Corporation (FDIC) was created by the Banking Act of 1933, also known as the Glass-Steagall Act, which was signed into law by President Franklin D. Roosevelt. The FDIC is a United States government corporation that provides deposit insurance for depositors in American commercial and savings banks. The creation of the FDIC was a response to the high failure rate of banks in the 1920s and early 1930s, with the aim of restoring trust in the American banking system.
| Characteristics | Values |
|---|---|
| Act that created the Federal Deposit Insurance Corporation | Banking Act of 1933 (also known as the Glass-Steagall Act) |
| Date of enactment | June 16, 1933 |
| Enacted by | President Franklin D. Roosevelt |
| Purpose | To restore trust in the American banking system, in response to the thousands of bank failures that occurred in the 1920s and early 1930s |
| Funding | Funded through insurance assessments collected from its member depository institutions and held in the Deposit Insurance Fund (DIF) |
| Function | Supplies deposit insurance to depositors in American commercial and savings banks |
| Initial insurance limit | US$2,500 per ownership category |
| Current insurance limit | $250,000 per ownership category |
| Exceptions to the limit | The Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 allows for unlimited deposit insurance on certain business accounts |
| Other notable provisions | Established the FDIC as a temporary government corporation; gave the FDIC authority to provide deposit insurance to banks, regulate and supervise state non-member banks, and borrow through the Federal Financing Bank (FFB) when necessary |
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What You'll Learn
The Banking Act of 1933
The Act had several key provisions:
Separation of Commercial and Investment Banking
Federal Deposit Insurance Corporation (FDIC)
The Act established the FDIC, an independent government corporation that insures bank deposits with a pool of money collected from banks. The FDIC's deposit insurance program was made permanent in 1935, providing full insurance for balances up to $5,000 and no insurance for balances above that amount. Over the years, the limit has been raised, with the current limit set at $250,000.
Regulation of National Banks
The Act gave tighter regulation of national banks to the Federal Reserve System, requiring holding companies and other affiliates of state member banks to submit three annual reports to their Federal Reserve Bank and the Federal Reserve Board. Additionally, bank holding companies that owned a majority of shares of any Federal Reserve member bank had to register with the Fed and obtain a permit to vote their shares in the selection of directors.
Restrictions on "Speculative" Bank Activities
Overall, the Banking Act of 1933 was considered a central cause for an unprecedented period of stability in the US banking system, lasting for four to five decades following its enactment.
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The Federal Deposit Insurance Act of 1950
The Federal Deposit Insurance Corporation (FDIC) was created by the Banking Act of 1933, which amended the Federal Reserve Act of 1913. The Federal Deposit Insurance Act of 1950 was signed into law by President Harry S. Truman on September 21, 1950.
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The Depository Institutions Deregulation and Monetary Control Act of 1980
The Federal Deposit Insurance Corporation (FDIC) was created by the Banking Act of 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. The FDIC's deposit insurance program was made a permanent part of the U.S. financial system by the Banking Act of 1935.
The act also included additional reporting requirements for depository institutions' assets and liabilities, to help the Fed gain greater control of the money supply. Another important feature of the act was the requirement that the Federal Reserve begin charging fees for certain services it provided, such as currency and coin storage for institutions, check clearing and collection services, wire transfers, and safekeeping of securities.
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The Federal Deposit Insurance Corporation Improvement Act of 1991
The Federal Deposit Insurance Corporation (FDIC) was established under the Banking Act of 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. The FDIC was set up as an independent government corporation, funded through insurance assessments collected from its member depository institutions.
The FDICIA strengthened the power of the FDIC, allowing it to borrow directly from the Treasury department. It mandated that the FDIC resolve failed banks using the least costly method available, and that federal banking agencies take prompt corrective action when an insured depository institution's capital declines. The FDIC was also ordered to assess insurance premiums according to risk and imposed new capital requirements.
The FDICIA also included provisions such as the Foreign Bank Supervision Enhancement Act of 1991, which amended the International Banking Act of 1978 to prohibit foreign banks from establishing branches in the US without prior approval from the Board of Governors of the Federal Reserve System. The FDICIA also amended the FDIA to preclude a Federal banking agency from requiring an insured institution to be designated as highly leveraged if it was no longer bankrupt after a reorganization plan.
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The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Federal Deposit Insurance Corporation (FDIC) was created by the Banking Act of 1933, also known as the Glass-Steagall Act, in response to the thousands of bank failures that occurred in the 1920s and early 1930s. The FDIC was established as an independent government corporation, funded through insurance assessments collected from its member depository institutions.
Now, onto the Dodd-Frank Wall Street Reform and Consumer Protection Act:
The Dodd-Frank Act sought to improve financial stability and consumer protection by reorganizing the financial regulatory system. It eliminated the Office of Thrift Supervision and assigned new roles to existing agencies, such as the FDIC, while also creating new agencies like the Consumer Financial Protection Bureau (CFPB). The Act increased oversight of institutions considered a systemic risk, amended the Federal Reserve Act, and promoted transparency. Additionally, it aimed to end "too big to fail" and protect taxpayers by preventing bailouts.
The Act has been categorized into 16 titles and is said to require regulators to create 243 rules, conduct 67 studies, and issue 22 periodic reports. While studies suggest that the Dodd-Frank Act has improved financial stability and consumer protection, there is also a debate about its economic impact. Some critics argue that it failed to adequately regulate the financial industry and negatively impacted economic growth and small banks. As a result, parts of the law were repealed in 2018 by the Economic Growth, Regulatory Relief, and Consumer Protection Act.
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Frequently asked questions
The Federal Deposit Insurance Corporation (FDIC) was created by the Banking Act of 1933, also known as the Glass-Steagall Act.
The FDIC was established to restore trust in the American banking system. More than one-third of banks failed in the years before the FDIC's creation, and bank runs were common.
The FDIC insures bank deposits with a pool of money collected from banks. This insurance is backed by the full faith and credit of the government of the United States, and since its start in 1933, no depositor has ever lost FDIC-insured funds.
