Federal Deposit Insurance Corporation

Federal Deposit Insurance Corporation

What I find most interesting about the Federal Deposit Insurance Corporation is that while it's a government entity, it doesn't take any money from the federal budget to run it's operation. It was founded by money from the U.S. Treasury and the Federal Reserve banks and continues to operate on fees and interest from the banks that it insures. This makes it somewhat of an outside agency even though it's still technically a government agency. In addition to banks, the Federal Deposit Insurance Corporation also insurers Savings and Loan Institutions under the Savings and Loan Insurance Fund.

What I found to be somewhat alarming was that in 2009 during the height of the last financial crisis, the FDIC reserve fund was only $13 billion compared with over $4 trillion dollars in insured deposits. If the banking crises got much worse the FDIC might have been forced to draw down on its U.S. Treasury holdings or $500 billion line of credit that it has available from the U.S. Treasury. I also find it somewhat alarming that banks are only mandated to deposit 10% of customer's deposits with the Federal Reserve. Even though most banks have much higher reserves on their own, typically in interest bearing cash equivalent financial instruments, it appears that our banking industry requires it's customers to keep faith in the system in order to avoid a deposit draw down and a likely eventual collapse.

I also found it interesting that the FDIC owns some unique items for a short period of time when it takes over failed banks. From banks loans, to oil wells, to real estate, to football teams, the FDIC has owned some interesting items for a short period of time. I was surprised to see that the FDIC itself was trying to sell the items. I think that if they utilized a third party broker it would be cheaper and would avoid any potential conflicts of interest from a government entity selling such types of property.

I think that the Federal Deposit Insurance Corporation is doing a great job keeping the United States banking system afloat. Without a lot of trust in the system, the entire thing would collapse overnight since banks are only required to deposit 10% of their customer's deposits with the Federal Reserve and only contribute a small portion of the money that they take in with the Federal Deposit Insurance Corporation.