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History During the Great Depression, Republican Senator Arthur Vandenberg and Democratic Representative Henry Steagall wanted to restore public confidence after a massive series of bank runs in early 1933 caused 4,004 banks to close, with an average of $900,000 in deposits. These banks were merged into stronger banks; many months later the depositors received about 85% of their money. It is an urban legend that millions of people lost their money in banks; rather, but most were forced to withdraw their deposits anyway so they could pay their bills. The total of all deposits in all 9,106 banks that suspended 1929-33 was $6.886 billion; losses to depositers were $1.336 billion or 19%. In May, the U.S. House Banking and Currency Committee reported a bill to insure deposits 100 percent to $10,000, after that on a sliding scale; it would be financed by a small assessment on the banks. However the U.S. Senate Banking Committee reported a bill that excluded banks that were not members of the Federal Reserve System. Senator Vandenberg rejected both bills because neither contained a ceiling on the guarantees. He proposed an amendment covering all banks beginning using a temporary fund and a $2,500 ceiling. It was passed as the Glass-Steagall Deposit Insurance Act in June with Steagall's amendment that the program would be managed by the new Federal Deposit Insurance Corporation. Led by Chicago banker Walter Cummings the FDIC soon included almost all the country's 19,000 banking offices. Insurance started January 1, 1934. President Franklin D. Roosevelt was personally opposed to insurance because it would protect irresponsible bankers, but yielded when he saw Congressional support was overwhelming. As the second head of FDIC in early 1934 he appointed Leo Crowley, a Wisconsin banker who, Roosevelt soon discovered, was using the FDIC to cover his own embezzlements. After some anguish Roosevelt kept Crowley on and hushed up the episode, which was first revealed in 1996. Insurance requirements In order to receive this benefit member banks must follow certain liquidity and reserve requirements. Banks are classified in 5 groups according to their risk-based capital ratio: When a bank becomes undercapitalized the FDIC issues a warning to the bank. When the number drops below 6% the FDIC can change management and force the bank to take other corrective action. When the bank becomes critically undercapitalized the FDIC declares the bank insolvent. FDIC insured items FDIC insurance covers the following types of accounts: Non-FDIC insured items Only the above types of accounts are insured. Some types of uninsured products, even if purchased through a covered financial institution, are: S&L and bank crisis of the 1980s Federal deposit insurance received its first large-scale test in the late 1980s and early 1990s during the savings and loan crisis (which also affected commercial banks). The brunt of the crisis fell upon a parallel institution to the FDIC, the Federal Savings and Loan Insurance Corporation (FSLIC), created to insure savings and loan institutions (S&Ls, also called thrifts). Due to a confluence of events, much of the S&L industry was insolvent and many large banks were in trouble as well. The FSLIC went bankrupt and was merged into the FDIC, which now has responsibility for insuring both commercial banks and thrifts. (Credit unions are insured by the National Credit Union Administration.) The primary legislative response to the crisis were the Financial Institutions Reform, Recovery and Enforcement Act of 1989 and Federal Deposit Insurance Corporation Improvement Act of 1991. The cost to taxpayers of resolving the crisis has been estimated at $150 billion. | ||||||||||
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