Mar 13, 2023 - Economy

What you need to know about the FDIC

The Federal Deposit Insurance Corp. headquarters in Washington, DC, on March 13. Photo: Al Drago/Bloomberg via Getty Images

The Federal Deposit Insurance Corporation (FDIC) has assumed control of Silicon Valley Bank and Signature Bank and will ensure that depositors don't lose any money in the aftermath of these banks' collapse.

The big picture: SVB was the 2nd largest bank in history to fail, but the FDIC steps in to help bank failures more commonly than people realize: It has worked for depositors of hundreds of failed banks since 2001.

  • Here's how the FDIC works:

What is the FDIC?

  • The FDIC is an independent agency of the federal government that seeks to protect bank depositors against the loss of their insured deposits in the unlikely event of a bank failure.
  • When a bank fails, the FDIC takes over and assumes responsibility for selling any of the bank's assets and settling any debts.
  • The FDIC was created in 1933 in response to the thousands of bank failures that followed the stock market crash of 1929.
  • The 2008 financial crisis brought about another spike in the number of failures of FDIC-insured institutions.

How does the FDIC work?

  • The FDIC receives no Congressional appropriations.
  • It generates its income from premiums that banks and savings associations pay for deposit insurance coverage.
  • The agency insures trillions of dollars of deposits in U.S. banks.

How does FDIC deposit insurance work?

  • When a bank fails, depositors are made whole by the FDIC insurance fund, which is funded by a levy on bank deposits.
  • The insurance only covers deposits up to $250,000 per depositor, per bank.
  • There are workarounds that allow depositors to effectively buy additional FDIC insurance, as Axios' Felix Salmon writes. The government can also decide to cover depositors above the limit.
  • On Sunday, Treasury, the FDIC, and the Fed jointly announced the FDIC would protect all deposits from both SVB and Signature Bank.
  • Deposit insurance is calculated dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default, per the agency.

How do you protect your money from a bank failure?

  • FDIC deposit insurance protects bank customers if an FDIC-insured bank fails.
  • If you want your funds insured by the FDIC, you must place your funds in a deposit account at an FDIC-insured bank and ensure that your deposit does not exceed the insurance limit.
  • In most cases, uninsured depositors have been paid out in full but it's no guaruntee.
  • Bank customers don’t need to purchase deposit insurance, as it's automatic for any deposit account opened at an FDIC-insured bank.
  • If you bank at a federal credit union, it will be insured by the National Credit Union Association and provides similar protections to the FDIC.
  • To determine if a bank is FDIC-insured, use the FDIC's BankFind tool.
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