An FDIC sign is posted on a window at a Silicon Valley Bank branch in Wellesley, Mass., on Saturday. The bank was caught in a meltdown, forcing a government takeover. The FDIC guarantees accounts up to $250,000.

An FDIC sign is posted on a window at a Silicon Valley Bank branch in Wellesley, Mass., on Saturday. The bank was caught in a meltdown, forcing a government takeover. The FDIC guarantees accounts up to $250,000. / AP

Updated March 14, 2023 at 8:05 AM ET

The FDIC was created 90 years ago to help the U.S. navigate a catastrophe that put thousands of banks out of business. Its mission is to keep panic and turbulence from collapsed institutions like Silicon Valley Bank, the second-largest bank failure in U.S. history, from spreading through the financial system.

Now the agency is once again working to convince citizens and businesses that their money is safe, hoping to avert bank runs that would deepen the current banking crisis.

The FDIC is relying on one of its main tools — deposit insurance — to help that cause, announcing that every account will be fully backstopped, even if deposits are above its current $250,000 limit.

The FDIC exists to help the banking system cope with exactly this type of crisis: When it was created in 1933, some 4,000 banks had closed in the first few months alone.

Here's a look at how the FDIC and deposit insurance work to bolster banks:

Public confidence has always been key

"I can assure you, my friends, that it is safer to keep your money in a reopened bank than it is to keep it under the mattress," President Franklin D. Roosevelt told the U.S. public on March 12, 1933, in his very first "Fireside Chat."

Fast-forward 90 years, and the current president and the FDIC are again working to convince citizens and businesses that their money is safe, hoping to avert runs on banks that would deepen the banking crisis.

From the agency's early days, deposit insurance has been seen as a key to bank customers' confidence — which in turn has been the key to banks' solvency.

"We knew how much of banking depended upon make-believe," Raymond Moley, a speechwriter and adviser to Roosevelt said years later, "or, stated more conservatively, the vital part that public confidence had in assuring solvency."

The plan worked: "Only nine banks failed in 1934, compared to more than 9,000 in the preceding four years," the FDIC says.

FDIC account limits have risen 7 times

The FDIC initially covered accounts up to $2,500 for each depositor at an insured institution in 1934, the year federal deposit insurance first took effect. But in July of the same year, the maximum was doubled to $5,000.

Both of those amounts were lower than the original target, which was to provide "full protection of the first $10,000 of each depositor, 75 percent coverage of the next $40,000 of deposits, and 50 percent coverage of all deposits in excess of $50,000," according to the FDIC.

By lowering the maximum, regulators also lowered the assessment rate banks would have to pay each year. The idea's backers said reforms and greater geographic diversity, among other factors, meant banks wouldn't fail as often, justifying the lower assessment.

Here's a summary of the next raises:

  • 1950: moves to $10,000
  • 1966: $15,000
  • 1969: $20,000
  • 1974: $40,000
  • 1980: $100,000
  • 2008: $250,000

FDIC insurance covers a range of accounts

The FDIC says it provides coverage to:

  • Checking accounts
  • Savings accounts
  • Money Market Deposit Accounts (MMDAs)
  • Certificates of deposit (CDs) and similar "time deposits"
  • Cashier's checks, money orders, and similar bank tools
  • Negotiable Order of Withdrawal (NOW) accounts

Deposit insurance does not apply to investment instruments such as stocks, bonds, mutual funds and annuities. It also doesn't apply to safe deposit boxes and municipal securities.

The FDIC "directly supervises and examines more than 5,000 banks and savings associations" to ensure they're safe and financially sound. The institutions themselves "can be chartered by the states or by the Office of the Comptroller of the Currency."

The FDIC is funded by banks

The Federal Deposit Insurance Corporation is an independent government agency. It was created by Congress, but it doesn't get its money from congressional appropriations.

Instead, banks and savings associations pay the FDIC insurance premiums to cover their customers' deposits, which total trillions of dollars.

"What the bank has to do is pay the FDIC an insurance premium," as John Bovenzi, who was then the FDIC's chief operating officer, told NPR back in 2009.

"So we charge the bank 12 cents for every $100 you put in the bank as insured money," Bovenzi said. "That allows us to build up our insurance fund to pay costs when we have problems like bank closings, where we have to then pay people their money back."

FDIC's goals have long been debated

From the start, a debate has persisted over how far the FDIC should go to protect the broader economy, with critics citing the dangers of encouraging risky behaviors.

Early opponents included Roosevelt himself. As the FDIC's internal history states, the president and his allies "believed a system of deposit insurance would be unduly expensive and would unfairly subsidize poorly managed banks."

But in the face of public sentiment, Congress approved a plan to create the Federal Deposit Insurance Corporation, and Roosevelt made it official when he signed the Banking Act of 1933.

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