Federal Insurance

The Federal Deposit Insurance Corporation ( FDIC ) is a United States government corporation created by the Glass-Steagall Act of 1933. It provides deposit insurance which currently guarantees checking and savings deposits in member banks up to $100,000 per depositor. The vast number of bank failures in the Great Depression spurred the United States Congress into creating an institution which would guarantee deposits held by commercial banks, inspired by the Commonwealth of Massachusetts and its Depositors Insurance Fund (DIF).

Accounts at different banks are insured separately. One person could keep $100,000 in accounts at two separate banks and be insured for a total of $200,000. Also, accounts in different ownerships (such as beneficial ownership, trusts, and joint accounts) can be considered separately for the $100,000 insurance limit. The Federal Deposit Insurance Reform Act of 2005 raised the amount of insurance for an Individual Retirement Account to $250,000.

The two most common methods employed by FDIC in cases of insolvency or illiquidity are the:

• Payoff Method, in which insured deposits are paid by the FDIC, which attempts to recover its payments by liquidating the receivership estate of the failed bank.
• Purchase and Assumption Method, in which all deposits (liabilities) are assumed by an open bank, which also purchases some or all of the failed bank's loans (assets).