Federal Deposit Insurance Corporation

The Federal Deposit Insurance Corporation (FDIC) is an independent federal agency created by the Glass-Steagall Act of 1933. The vast number of bank failures in the Great Depression spurred the United States Congress into creating an institution which would guarantee banks, inspired by the success the Commonwealth of Massachusetts experienced with Deposit Insurance Fund (DIF). The FDIC currently guarantees checking and savings deposits in member banks up to $100,000 per depositor.

Criticisms of deposit insurance

Not all economists think that the FDIC is a good idea. The main fear of its critics is that the government will, for very large banks (which they consider "too big to be allowed to fail"), use the FDIC fund money to "bailout" a large bank, rather than letting it fail and paying the up to $100,000 amount per depositor. These economists believe that free market political decision making in this matter will lead to the best net result, and that there is not enough money to adequately use FDIC funds to "prop up" banks. Some advocate privatizing the FDIC insurance money, with the caveat of not allowing the "too big to fail" system. These critics mostly believe that the current FDIC insurance would fail as did the FSLIC, and would require a bailout from the government.

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