Why FDIC was Created?
The Federal Deposit Insurance Corporation (FDIC) was created in response to the banking crisis of the Great Depression in the 1930s. During that time, widespread bank failures led to a loss of confidence in the banking system, causing depositors to panic and withdraw their funds from banks. To address this crisis and restore public confidence in the banking system, the U.S. government created the FDIC. The primary objectives of creating the FDIC were,
1. Deposit Insurance: The FDIC was established to provide deposit insurance to depositors in eligible banks and savings institutions. The goal was to protect depositors’ funds and reassure them that their money was safe even in the event of a bank failure. By insuring deposits up to a certain limit, the FDIC aimed to prevent bank runs and restore confidence in the banking system.
2. Stability and Confidence: By providing deposit insurance, the FDIC aimed to promote stability and confidence in the banking system. The assurance of FDIC insurance encouraged depositors to keep their funds in banks, thereby preventing mass withdrawals and bank runs. This stability was crucial for maintaining the flow of credit and liquidity in the economy, supporting economic recovery and growth.
3. Regulatory Oversight: In addition to providing deposit insurance, the FDIC was tasked with regulating and supervising FDIC-insured banks and savings institutions to ensure their safety and soundness. The FDIC conducts regular examinations, oversees compliance with banking laws and regulations, and takes corrective actions to address risks and weaknesses in the banking system.