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Federal Deposit Insurance Corporation
Source: Encyclopedia of Banking & Finance (9h Edition) by Charles J Woelfel
(We recommend this as work of authority.)

An independent executive agency, originally established by the BANKING ACT OF 1933 to insure the deposits of all banks entitled to federal deposit insurance under Section 12B of the Federal Reserve Act; and under the FEDERAL DEPOSIT INSURANCE ACT, approved September 21, 1950, since the latter date.

The FDIC, as it is referred to, administers the system of nationwide deposit insurance (or, more properly, mutual guaranty of deposits) for U.S. banks, established for the first time in the nation's history effective January 1, 1934.  Its functions are more than merely ministerial, however, and it has important supervisory and examination powers which make it the third federal banking supvervisory agency, along with the Comptroller of the Currency and the Board of Governors of the Federal Reserve System.


Management of the FDIC is vested in a board of directors of three members.  The President appoints two members for terms of six years, by and with the advice and consent of the Senate.  The third member is the Comptroller of the Currency.  One of the appointive members is designated chairman of the board of directors.  Under the law, not more than two members of the board shall belong to the same political party.

Principal office of the corporation is in Washington, D.C., where the executive offices are maintained and where about one-fourth of the corporation's total number of employees are stationed.  District offices are maintained in Atlanta, Boston, Chicago, Columbus, Dallas, Kansas City, Madison, Memphis, Minneapolis, New York, Philadelphia, Richmond, St. Louis, and San Francisco, which service the districts involved.  Largest division in terms of personnel is the Division of Examination, over 90% of whose employees, who account for about three-fourths of the corporation's total employment, are assigned to the district offices.

The corporation is entirely self-sustaining.  No appropriations are made by Congress for it, its entire net income consisting of:

1.  Assessments on insured banks.  Assessments are earned by the corporation at the
     statutory rate of 1/12 of 1% of total assessable deposits of insured banks.  Legislation
     enacted in 1950 provided that a portion of the assessments earned each year, after
     allowance for the corporation's insurance losses and operating expenses, be returned to
     insured banks as a credit against future assessments.

2.  Income from investments, which are U.S. government securities.  The insured banks do not
     participate in the corporation's income from investments.

All certified statements submitted by the banks, showing the computation of assessments due, are reviewed by the Washington office for clerical accuracy and for general reasonableness of the figures reported.  Field audits of the assessment records of the banks are made by the Audit Division.

Deposit Insurance Fund

This represents the corporation's accumulated net income since inception (i.e., surplus).  The fund is available to meet future deposit insurance claims and related losses.  Its adequacy to meet these future requirements is dependent upon the soundness of financial condition of insured banks and their ability to maintain solvency despite adverse factors such as unfavorable economic conditions generally and individual bank difficulties specifically.  Thus the size of the fund is not a measure of the deposit insurance risk.

The corporation is authorized to borrow up to $3 billion from the U.S. Treasury when in the judgment of the board of directors such funds are required for insurance purposes.  This borrowing authority has never been used.  There is no outstanding borrowed money. 

Originally, the corporation was helped to start operations by the subscription of $150 million in stock by the U.S. Treasury and another $140 million total stock subscribed for by each Federal Reserve bank, in an amount equal to half of the surplus of each Reserve bank as of January 1, 1933.  All of this capital was repaid in 1947 and 1948, and interest on the capital was repaid to the U.S. Treasury in 1951.


The FDIC, aside from its power to collect the deposit insurance assessments from the insured banks (all national banks in the continental U.S. and all state banks that are members of the Federal Reserve System are required to be insured; all nonmember national and state banks mayd become insured upon applications to the FDIC and compliance with statutory requirements), has the following powers with respect to insured banks:

1.  To examine insured banks not members of the Federal Reserve System and to make
     special examination of any state member bank and any national bank or District of
     Columbia bank whenever the board of directors deems such special examination
     necessary to determine the condition of any such bank for insurance purposes.

2.  To terminate the insured status of a bank which continues, after notice and hearing, to
     engage in unsafe and unsound practices.

3.  To pass upon conversions, mergers, or consolidations and assumption of deposit liability
     transactions between insured banks and noninsured banks or institutions, and to prevent
     capital and surplus diminution in such transactions where the resulting, continuing, or
     assuming bank is an insured nonmember state bank.

4.  To act as receiver for all national banks placed in receivership and for state banks placed
     in receivership, when so appointed by state authorities.

5.  In protecting depositors, to make loans to or purchase assets from insured banks in order
     to facilitate mergers or consolidations, and to reduce risks or avert threatened loss to the
     corporation, and to prevent the closing of an insured bank or to reopen a closed insured
     bank when the corporation considers the continued operation of such bank essential to
     provide adequate banking services in the community.

6.  To approve or disapprove a proposal to reduce or retire the capital of an insured bank not
     a member of the Federal Reserve System, except a District of Columbia bank.

7.  To approve or disapprove a proposal by an insured bank not a member of the Federal
     Reserve System, except a district bank, to establish and operate a new branch, or move its
     main office or any branch from one location to another.

8.  To prescribe rules and regulations relating to advertising which banks must use to enable
     the public to know that they are insured.

9.  To require insurance protection against burglary, defalcation, and other similar insurable

10.  To publish notice of the termination of the insured status of a bank and to regulate the 
       manner in which the bank shall give the required notice of such termination to depositors.

11.  To prohibit the payment of interest on demand deposits of insured banks not members of
       the Federal Reserve System.

12.  To limit rates of interest on time and savings deposits of insured banks not members of
       the Federal Reserve System and to prescribe different rates for deposits received under
       different specified conditions.  (The chairman of the FDIC is a member of the
       to Title II of the Depository Institutions Deregulation and Monetary Control Act of 1980 to
       oversee the orderly phaseout of interest rate ceilings for commercial banks and mutual
       savings banks (as well as savings and loan associations and credit unions).  The DIDC's
       charter includes regulatory authority over all matters relating to interest rates during the
       phaseout period.)

13.  To prohibit, before maturity, the payment of time deposits of insured banks not members
       of the Federal Reserve System or the waiver of any requirement of notice before payment
       of any savings deposit, except as to all savings deposits having the same requirement.

14.  For the purpose of any hearing under the Federal Deposit Insurance Act, to subpoena any
       officer or employee, or any books, records, or other papers of the insured bank which are
       relevant or material to the hearing.

Activities of the FDIC in 1987 and 1988 include the following:

1.  Bank Secrecy Act.  Issued a rule requiring banks to establish and maintain procedures to
     assure and monitor compliance with the Bank Secrecy Act and the implementing
     regulations promulgated thereunder.

2.  Capital requirements.  Amended its capital regulations to (a) clarify and revise certain
     definitions, (b) reserve the authority of the FDIC with respect to the definitions of "primary
     capital" and "secondary capital," (c) specified that the terms and conditions to which capital
     instruments are subject must be consistent with safe and sound banking practices, and 
     (d) limited the circumstances in which the FDIC would not approve a proposed merger
     transaction when the resulting entity will not meet the FDIC's minimum capital requirements.

3.  Foreign bank branches - loan limits.  Specified that exposure in loans to entities or
     individuals outside the U.S. by insured branches of foreign banks operating as such on
     November 19, 1984, must be within prescribed limits.

4.  Privacy Act of 1974.  Amended its regulations so that appeals of adverse agency
     determinations on requests for access to or amendment of records will be considered by
     the FDIC's general counsel.

Operation of Deposit Insurance

The insurance covers deposits of every kind, including regular commercial deposits, time deposits, savings deposits, and trust funds awaiting investment.  No distinction is made between public and private deposits, and the insurance applies even though security, such as depository bonds or collateral, may have been furnished by the bank for the repayment of such deposits.  For insurance purposes, the official custodian of public funds is considered to be the depositor, not the public unit; he is entitled to insurance upon such funds deposited in an insured bank and maintained in the same right and capacity to the maximum of $100,000.  If the deposited public funds are maintained in different rights and capacities, such official custodian is entitled to the maximum insurance of $100,000 upon funds maintained in each different right and capacity.  If the official custodian holds the funds of several public units, the insurance protection will be as above stated with respect to the funds of each public unit.

Similarly, individual accounts in the same bank, in different rights and capacities, are entitled each to the $100,000 deposit insurance coverage; and the same right or capacity of an account, in different insured banks, is entitled to the maximum deposit insurance coverage in each insured bank.  This has had some tendency to distribute deposits among insured banks, as to those individuals who are deposit-insurance conscious.

Procedure in Protection of Depositors

A bank in difficulty may be placed in receivership only by the supervisory authority concerned - the Comptroller of the currency if a national bank, and the state authority if a state bank.  The corporation must be appointed as receiver for all national banks placed in receivership and must accept appointment as receiver for any insured state bank in receivership if tendered by the state supervisory authority.  As receiver, the corporation has the rights and obligations provided for by the National Bank Act in the case of a national bank or the applicable state law in the case of a state bank.

Upon the placing of a bank in receivership, the corporation examines the closed bank's records in order to establish the amount of the insured deposit liability.  The amount of each depositor's insured deposit - the lesser of the total amount of the deposit or $100,000 - is paid upon presentation of a bona fide claim and subrogation of the claim against the receivership.  The subrogated claims entitle the corporation to share in receiver's dividends pro-rata with the depositors having claims in excess of $100,000.

A bank in difficulty may, with the approval of the supervisory authority and of the corporation, be merged with or contract to have its deposit liabilities assumed by another insured bank instead of being placed in receivership.  In such cases, the receiving bank (1) assumes all recorded deposit liabilities of the closed bank, and (2) receives those assets of the closed bank that are acceptable and funds equal to the difference between the assumed deposit liabilities and the acceptable assets, which funds are advanced to the closed bank by the corporation.  The corporation receives the unacceptable assets from the closed bank in accordance with (1) a loan agreement under which the assets are considered collateral, or (2) a purchase agreement under which the assets are sold to the corporation and may, in some cases, be reacquired by the closed bank.

The corporation liquidates the unacceptable assets and retains the proceeds in reimbursement of the amount advanced to the closed bank, in reimbursement of expenses incurred in connection with the maintenance and liquidation of the assets, and in payment of interest or allowable return on the unliquidated advances and accumulated expenses.  In the loan agreement cases, the corporation completes the liquidation of the remaining assets and returns all proceeds in excess of the recoverable amounts to the closed bank, unless the bank elects to reacquire the assets and complete the liquidation.  See appended table of FDIC banks closed or assisted due to financial difficulties, and problem banks:  1971-1987.  Also see appended Federal Insurance Commercial Banks - Assets and Liabilities:  1975-1987.

The Competitive Equality Banking Act of 1987 contained several major provisions that were particularly significant for the FDIC.  The act provided for financial institutions emergency acquisitions.  (1) Out-of-state holding companies were permitted to acquire qualified stock institutions, as well as mutual savings banks, before they fail if they have assets of $500 million or more; (2) a holding company to be sold, in whole or in part, to an out-of-state holding company if the in-state holding company has a bank or bank with aggregate banking assets of $500 million or more in danger of closing and the bank or banks represent 33% or more of the holding company's banking assets; and (3) an out-of-state holding company expansion rights in the state of acquisition through the bank holding company structure.

The act also permits the FDIC to establish a bridge bank to assume the deposits and liabilities and purchase the assets of a failed bank under specified conditions.  The bridge bank must be a separately chartered national bank and it must be operated by a five-member board of directors appointed by the FDIC.

The FDIC and other financial institutions regulatory agencies are exempt from the apportionment provisions of the Anti-Deficiency Act (Gramm-Rudman-Hollings Act and the Anti-Deficiency Act.

Agricultural banks may, under certain circumstances, write down their losses on agricultural loans over seven years rather than deduct the amount of loss from capital as soon as the loss is recognized.

Nonbank banks are prohibited by requiring companies which acquired a nonblank bank after March 5, 1987, to comply with the Bank Holding Company act or divest their bank subsidiary.

The act authorized a newly established financing corporation funded by the Federal Home Loan banks to raise $10.6 billion for the FSLIC by selling bonds in the capital markets.  FSLIC is limited to spending up to $3.75 billion per year in conjunction with failed thrift institutions.

A moratorium was imposed on insured banks with respect to certain securities, insurance, and real estate activities.

Provisions of the Glass-Steagall Act that prohibits affiliations and interlocking directors, officers, and employees between banks and securities firms were extended to FDIC-insured nonmember banks and thrift institutions until March 1, 1988.

Other provisions of the act require the FDIC to consider and minimize the adverse economic impact of a liquidation on the local community and require institutions offering adjustable-rate mortgages to include a maximum interest rate that may apply during the term of the loan.

In 1987, the five federal bank regulatory agencies issued a rule requiring banks to establish and maintain procedures to assure and monitor compliance with the Bank Secrecy Act and the Implementing regulations promulgated thereunder by the Department of the Treasury.  The FDIC in 1987 amended its capital regulations to (1) clarify and revise certain definitions, (2) reserve the authority of the FDIC with respect to the definitions of "primary capital" and "secondary capital," (3) specify that the terms and conditions to which capital instruments are subject must be consistent with safe and sound banking practices, and (4) limit, on the basis of insurance status, the circumstances in which the FDIC will not approve a proposed merger transaction when the resulting entity will not meet the FDIC's minimum capital requirements.



Federal Deposit Insurance Corporation.  Vols. I and II.  Prentice Hall, Inc., Englewood Cliffs, NJ.  Latest edition.

LAPIDUS, L., et al.  State and Federal Regulation of Commercial Banks (2 vols.).  Federal Deposit Insurance Corporation, 1980.

SPRAGUE, I.H.  Bailout:  An Insider's Account of Bank Failures and Rescues.  Basic Books, Inc., New York, NY, 1986.

FDIC Organization Chart

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