Through the Federal Deposit Insurance Corporation (FDIC) and Deposit Insurance Fund (DIF), Americans enjoy a robust deposit insurance framework with the dual benefits of federal insurance for their own bank deposits and protection from liability, as taxpayers, for the deposits of others.

Unwinding a Bank: The FDIC

Should a bank’s assets, including loans and other investments, become worth less than its liabilities, including deposits and bonds, the bank is closed by regulators. From 1921 through 1930, when more than 1,200 banks failed and were liquidated, depositors were repaid only approximately 60%
of the money they deposited, and often after significant delays. The delay in repaying depositors after bank failures and the susceptibility of banks to deposit runs contributed significantly to the Great Depression.

This led Congress, in 1933, to create the Federal Deposit Insurance Corporation (FDIC) and the industry‐funded Deposit Insurance Fund (DIF). When a bank is closed, the FDIC is appointed as conservator or receiver for the bank and manages the payment of claims of creditors, including
depositors, against the failed bank out of the proceeds received from the liquidation of the bank’s assets and other recoverable sources. The FDIC is required by law to resolve the bank in the manner which will result in the least cost to the DIF.

FDIC resolutions will be facilitated in the future by the requirement that all insured depository institutions with $50 billion or more in total assets will have to maintain resolution plans, or “living wills.” These will be developed in an iterative way with the FDIC to ensure they are accurate and
“credible,” with significant regulatory consequences if the FDIC does not believe them to be credible.

Depositor Protections: The Deposit Insurance Fund

The DIF is pre‐funded through assessments on the banking industry. As a result of Section 331 of the Dodd‐Frank Act, known as the Tester Amendment, FDIC assessments are levied on each insured depository institution based on the average consolidated total assets of the insured depository institution during the assessment period. The assessment scheme must also by statute be risk-based, reflecting the risk that the depository institution poses to the DIF.

Account holders are insured by the FDIC up to the deposit insurance limit, which is currently $250,000 per depositor with respect to deposits held in any single insured bank. Most importantly, no depositor has lost a penny of insured deposits since the FDIC was created in 1933. If the DIF is
required to pay more to insured depositors than the FDIC recovers from the liquidation of a closed bank, the FDIC imposes assessments on the industry to rebuild the fund. Deposits beyond the $250,000 limit are considered uninsured deposits and they are paid out of the proceeds of the
liquidation of the bank, to the extent those proceeds are available.

The Clearing House, established in 1853 to bring order to clearing and settlement between banks, is the nation’s oldest banking association and payments company.