Federal Deposit Insurance Corporation
| Federal Deposit Insurance Corporation (FDIC) | |
| |
| Founded | 1933 |
|---|---|
| Headquarters | Washington, DC |
| Web site | www.fdic.gov |
The Federal Deposit Insurance Corporation (FDIC) is an independent federal government agency created by Congress through the Glass-Steagall Act of 1933 during the Great Depression to maintain public confidence in the U.S. financial system. FDIC does this by insuring deposits in banks and thrift institutions for at least $100,000, by identifying, monitoring and addressing risks to the deposit insurance funds; and by limiting the effect on the economy and the financial system when a bank or thrift institution fails.
The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. The FDIC insures more than $3 trillion of deposits in U.S. banks and thrifts – deposits in virtually every bank and thrift in the country.[1] As of Q3 2022, the Deposit Insurance Fund totaled $125.5bn.[2]
The FDIC insures deposits only. It does not insure securities, bonds, mutual funds or similar types of investments that banks and thrift institutions may offer.
The FDIC's stated mission is to maintain stability and public confidence in the nation's financial system. In support of this goal, the FDIC:
- Insures deposits,
- Examines and supervises financial institutions for safety and soundness and consumer protection,
- Works to make large and complex financial institutions resolvable, and
- Manages receiverships.[3]
History[edit]
An independent agency of the federal government, the FDIC was created in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. Since the start of FDIC insurance on Jan. 1, 1934, no depositor has lost a single cent of insured funds as a result of a failure.
The FDIC said in early January of 2011 that as of mid-December, it had authorized lawsuits against 109 directors and officers of failed financial institutions in an effort to recover nearly $2.5 billion. It was anticipated that the agency, which had to contend with 157 bank failures in 2010, could sue bank directors and officers for what it considered gross or simple negligence. The FDIC guarantees individual deposits of up to $250,000, but when a bank fails, the agency’s insurance fund takes a hit, and lawsuits against negligent bank officers are one way it seeks to recover money.[4]
In August of 2017 the FDIC sued Barclays, Deutsche Bank, Lloyds Banking Group, Royal Bank of Scotland, Rabobank and UBS, as well as the British Bankers’ Association, in a London court for fraud in the Libor rate-settling process, after a similar lawsuit failed in New York City.[5]
In November of 2023, a Wall Street Journal investigation based on interviews with FDIC employees and legal filings found that the agency had enabled and failed to punish male FDIC employees for sexual harassment, misogyny and a "toxic atmosphere."[6] [7] Seven months later, in June of 2024, FDIC Chair Martin Gruenberg agreed to resign after an independent investigation revealed pervasive sexual harassment, discrimination and bullying at the agency. President Joseph Biden nominated Christy Goldsmith Romero to replace Gruenberg as the new FDIC chair.[8]
Resolution of GSIBs[edit]
The resolution of Global Systemically Important Banks (GSIBs) under Title II of the Dodd-Frank Act (DFA) represents a critical aspect of financial reform initiated in response to the 2008 financial crisis. The overarching objectives of the Dodd-Frank Act include enhancing the stability of the U.S. financial system, eliminating the notion of institutions being "too big to fail," and safeguarding taxpayers from bearing the burden of financial bailouts. Title II of the DFA equips regulatory bodies, primarily the Federal Deposit Insurance Corporation (FDIC), with the authority and tools necessary to facilitate the orderly resolution of large, complex financial entities. This resolution framework becomes essential when the failure of a financial institution poses significant risks to financial stability and requires intervention beyond the scope of conventional insolvency laws, typically governed by the U.S. Bankruptcy Code. Under Title II, the FDIC can step in as a receiver of a failed financial company, establish a Bridge Financial Company to maintain essential operations, manage administrative processes to allocate losses among shareholders and creditors, and coordinate with foreign authorities if the failed entity has global operations. Additionally, Title II authorizes the creation of the Orderly Liquidation Fund (OLF), providing temporary liquidity support for resolution activities. Importantly, Title II emphasizes the accountability of management responsible for the failure and ensures that losses are primarily borne by investors and creditors rather than taxpayers. Through Title II, regulators aim to contain costs and uncertainties associated with financial institution failures while bolstering the resilience of the financial system to future crises.[9]
Single Point Of Entry, Regulations, Planning and International Cooperation[edit]
The resolution of Global Systemically Important Banks (GSIBs) under the Dodd-Frank Act by the Federal Deposit Insurance Corporation (FDIC) involves a multifaceted approach aimed at ensuring the orderly wind-down of these institutions in the event of failure. One key strategy employed is the Single Point of Entry (SPOE) framework, which focuses on placing only the parent holding company into resolution while keeping subsidiaries operational. This approach aims to mitigate disruption to customers, counterparties, and service providers. To support this strategy, regulations have been implemented to enhance the total loss-absorbing capacity (TLAC) of GSIBs, streamline holding company structures, and implement stays on counterparty actions to prevent mass early terminations of contracts. Additionally, GSIBs are required to undergo rigorous resolution planning processes to improve their resolvability, including establishing triggers for timely action, planning for operational continuity, and providing transparency to investors and markets. International cooperation is also emphasized, with cross-border engagement and crisis management groups facilitating coordination among regulatory authorities to enhance readiness for resolution. These measures collectively aim to minimize systemic risk and improve the likelihood of an orderly resolution of GSIBs under Dodd-Frank.
Contingency Planning, Bankruptcy or Title II, Confirming the Resolution Strategy[edit]
In the context of the Dodd-Frank Act, the resolution of U.S. Global Systemically Important Banks (GSIBs) by the Federal Deposit Insurance Corporation (FDIC) involves a structured decision-making process aimed at managing financial distress and ensuring financial stability. The strategic approach to launching a Title II resolution for a U.S. GSIB begins with contingency planning, initiated when the institution experiences stress and progresses toward potential failure. This planning encompasses various resolution options, simultaneous recovery actions, and consideration of bankruptcy proceedings in line with Title I planning. Governance mechanisms, including triggers for timely actions, are established to guide the process, ensuring swift responses tailored to the firm's circumstances.
Concurrently, the FDIC undertakes heightened monitoring and contingency planning for a Title II resolution, aligning with the financial company's recovery efforts. Early engagement with domestic and foreign supervisory authorities is emphasized to assess recovery prospects and confirm the likely legal regime and resolution strategy. This collaboration leverages established processes, information sharing agreements, and cross-border coordination to limit disruption to subsidiaries and ensure operational continuity.
Key considerations in determining the appropriate timing for resolution include balancing recovery prospects with the risks of delay and assessing the financial company's access to liquidity. The decision to proceed with a Title II resolution is made through a multi-agency process, known as the "three keys process," involving recommendations from federal agencies followed by a determination by the Secretary of the Treasury, in consultation with the President.
The FDIC's internal planning focuses on evaluating resolution strategies, with a preference for the Single Point of Entry (SPOE) strategy for U.S. GSIBs, which involves resolving only the top holding company while subsidiaries remain operational. However, alternative strategies may be considered if resources are inadequate for SPOE implementation. International cooperation is crucial for resolving foreign GSIBs with U.S. operations, with resolution led by home country authorities and potential challenges addressed through established procedures.
Key People[edit]
Board of Directors[edit]
Travis Hill, Vice Chairman (Acting Chairman), Federal Deposit Insurance Corporation
Vacant, Director, Federal Deposit Insurance Corporation
Rodney E. Hood, Director, Acting Comptroller of the Currency
Russell Vought, Director, Acting Director, Consumer Financial Protection Bureau
References[edit]
- ↑ Who is the FDIC?. FDIC.
- ↑ FDIC Quarterly Banking Profile Third Quarter 2022. FDIC.
- ↑ What We Do. FDIC.
- ↑ FDIC Seeks $2.5 Billion From Executives of Failed Banks. DealBook.
- ↑ FDIC sues Barclays, RBS and other banks over Libor. The Financial Times.
- ↑ Strip Clubs, Lewd Photos and a Boozy Hotel: The Toxic Atmosphere at Bank Regulator FDIC. The Wall Street Journal.
- ↑ FDIC boss grilled after ‘horrendous’ harassment revelations. The Financial Times.
- ↑ Biden nominates Christy Goldsmith Romero to lead FDIC at pivotal time for the banking regulator. CNN.
- ↑ Overview of Resolution Under Title II of the Dodd-Frank Act. FDIC.