The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States federal government that preserves public confidence in the banking system by insuring deposits. The FDIC is headquartered in Washington, D.C., with several regional offices and numerous field offices throughout the U.S. The agency is managed by a five-person Board of Directors, all of whom are appointed by the President and confirmed by the Senate, with no more than three being from the same political party.
Creation and purpose of the FDIC
The U.S. Congress created the FDIC in 1933 during the Great Depression in response to widespread bank failures and massive losses to bank customers. The funds for the agency are provided in the same way as the funds for a private insurance company but on a larger scale. Premiums are paid by all participating institutions. The FDIC insures deposits at the nation's banks and savings associations - 5,406 as of December 31, 2018. The FDIC receives no federal tax dollars.
Premiums are paid by all participating institutions. A total of over $3 trillion in U.S. dollars is insured by a fund of approximately $50 billion. Conventional checking accounts, savings accounts, certificates of deposit and money-market deposit accounts are insured up to $100,000 per depositor in each bank. Most retirement accounts are insured up to $250,000 per depositor. The FDIC does not insure stocks, bonds, annuities, insurance policies, securities or mutual funds. Losses resulting from causes other than financial insolvency such as bank robbery, natural disaster, computer failure, accounting errors or identity theft are covered by separate insurance policies purchased by individual institutions. In some cases, civil remedies may be available.
In the event of the failure of a specific financial institution, the FDIC may do any of several things. Usually, customer deposits and loans of the failed institution are sold to another institution. Depositors automatically become customers of the new institution and usually notice no significant change in their accounts other than the name of the institution that holds the deposits.
FDIC and cybersecurity
The FDIC has been the subject of particular scrutiny following data breaches in 2015 and 2016. The Office of the Attorney General (OAG) issued a report in May 2019. While only a redacted version of the report was made publicly available, the OAG noted that the FDIC had classified 12 of these incidents as “major incidents,” and that these major incidents involved the release of public identities and information of more than 120,000 individuals, as well as business proprietary and sensitive data on financial institutions.
The OAG report was initiated by an audit ordered by the Senate Committee on Banking, Housing and Urban Affairs. The audit focused on two security controls intended to prevent and detect cyber threats on the FDIC’s network: firewalls and the security information and event management (SIEM) tool, which combines security information management (SIM) and security event management (SEM) functions into one security management system.
2008 financial crisis
Between 2008 and 2013, 489 banks and savings institutions failed during what is now called the Great Recession. Losses incurred by the Deposit Insurance Fund to close failing banks and protect insured depositors exceeded fund revenue. From 2011 through 2016, the FDIC used the expanded authority granted in the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 (Dodd-Frank Act) to revise its fund management strategy and its methodology for risk-based deposit insurance assessments.