Must-know: Why the FDIC is the second major banking regulator


Nov. 7 2019, Updated 7:34 p.m. ET

Federal Deposit Insurance Corporation 

The Federal Deposit Insurance Corporation (or FDIC) is the second most important banking regulator in the U.S. The FDIC directly examines and supervises more than 4,500 banks and savings banks for operational safety and soundness.

This covers more than half of the institutions in the banking system. Banks can be chartered by the states or by the federal government. Banks chartered by the states also have the choice of whether to join the Federal Reserve System.

The FDIC is the primary federal regulator of banks chartered by the states that don’t join the Federal Reserve System. In addition, the FDIC is the backup supervisor for the remaining insured banks and thrift institutions.

The FDIC is the regulator to banks like First Republic Bank (FRC), Opus Bank (OPB), Preferred Bank (PFBC), and Summit State Bank (SSBI). Many small banks, such as those in a regional banking ETF like SPDR S&P Regional Banking ETF (KRE), are also regulated by the FDIC.

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The FDIC was set up in 1933 in response to a number of bank failures during the 1920s and 1930s. The primary duty of the FDIC is to insure deposits in banks and thrifts for a limit of at least $250,000. The FDIC does this by identifying, monitoring, and addressing risks to the deposit insurance funds and by limiting the effects on the economy and the financial system when a bank or thrift institution fails.

By insuring the deposits up to a value of $250,000, the FDIC aims to preserve and promote public confidence in the U.S. financial system. By doing this, the FDIC has ensured that depositors won’t lose their deposits in case of bank failure. The above chart makes it clear that a number of banks have failed since the FDIC was started, but no depositor has lost money.


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