The head of the Federal Deposit Insurance Corporation (FDIC), Jelena McWilliams recently resigned, and Martin Gruenberg stepped in as the acting chairperson of the institution. The news brings into the spotlight the renewed purpose for the FDIC as well as the next steps in shaping the future for banks and financial institutions.
But before we dive straight in, it’s important to understand the history of the FDIC and why we’ve relied on it so much over the years.
The FDIC was created in 1933 during the depths of the Great Depression to protect bank depositors and ensure a level of trust in the United States banking system. This came only a few years after the devastating stock market crash in 1929 and caused a frantic run on banks by depositors to withdraw their cash, resulting in more than 9000 bank failures across the country between 1929 and 1933.
The outcome of that was the Banking Act, a statute that enabled Congress to establish the FDIC, and insure commercial bank deposits of $2,500 – which gradually increased over time. It also for the first time extended federal oversight to commercial banks, fostering stability across financial markets.
Fast-forward to 2007, problems in the mortgage market led to the worst financial crisis since the Great Depression and more than twenty US banks had failed by late 2008. As a result, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law in 2011, which raised the FDIC deposit insurance limit to $250,000 per account.
Regulation & The Safety of Your Money
The United States’ history is a testament to why these laws and regulations exist. Which is why they shouldn’t be feared but embraced, as should innovation.
For instance, take the emergence of new fintech companies and neo-banks – neobanks, often called challenger banks, are fintechs that offer non-traditional banking services digitally. But unlike traditional online banks, neobanks are not FDIC insured unless they have partnered with a chartered bank. That distinction is why it’s so important to remember why chartered banks are still the safest place for your money.
Looking Forward & What’s to Come
As we look to 2022, the FDIC is more relevant than ever and additional regulation and reform of outdated practices needs to be embraced in the same way it was in previous years.