How the FDIC Works

THE Federal Deposit Insurance Corporation (FDIC) took control of Bank of Silicon Valley And Signature Bank and will ensure that depositors do not lose money as a result of the collapse of these banks.

The big picture: SVB was the second largest bank in history to fail, but the FDIC steps in to help bank failures more often than people realize: it has worked for depositors at 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 the sale of all bank assets and the settlement of all 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 led to another spike in the number of bankruptcies of FDIC-insured institutions.
How does the FDIC work?
  • The FDIC receives no appropriation from Congress.
  • It derives its income from the premiums that banks and savings associations pay for deposit insurance coverage.
  • The agency insures trillions of dollars in deposits in US banks.
How does FDIC deposit insurance work?
  • When a bank fails, depositors are compensated by the FDIC insurance fund, which is financed 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 efficiently purchase additional FDIC insurance, such as Axios’ Felix Salmon writing. The government can also decide to cover depositors above the limit.
  • On Sunday, the Treasury, FDIC and Fed jointly announced that the FDIC would protect all deposits at SVB and Signature Bank.

  • Deposit insurance is calculated dollar for dollar, principal plus any interest accrued or due to the depositor, up to the date of default, according to the agency.
How to protect your money from a bank failure?
  • FDIC deposit insurance protects bank customers in the event that an FDIC-insured bank fails.
  • If you want your funds to be FDIC insured, 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 fully reimbursed, but this is not a guarantee.
  • Bank customers do not need to purchase deposit insurance, as it is automatic for any deposit account opened at an FDIC-insured bank.
  • If you do business with a federal credit union, it will be insured by the National Association of Credit Unions and offers protections similar to the FDIC.
  • To determine if a bank is FDIC insured, use the The FDIC’s BankFind tool.

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