Banking and Finance - Insurance
Generally, federally administered insurance programs provide insurance coverage for banks and financial institutions. The Federal Deposit Insurance Corporation (FDIC) provides the most commonly used insurance. Bank insurance provides the customer and bank security in the event of a failure. The specific type of insurance and who is covered depends on the type of bank and transactions involved. Some federally administered insurance protects the bank from default on loans, while other types of insurance protect the customer from financial loss due to bank failure. If you have legal questions involving banking, financing and insurance, contact our firm to schedule a consultation with an attorney.
Federal Deposit Insurance Corporation
The Federal Deposit Insurance Corporation (FDIC) insures bank deposits of up to $100,000 per deposit, per insured bank, protecting the customer in the event of a bank's failure. This applies to all depositors of an insured bank except owners of certain retirement accounts, which are insured for up to $250,000 per owner, per insured bank. The FDIC also is responsible for examining banks for financial soundness and compliance with fair lending and anti-discrimination laws. Accounts under a single owner are combined to provide a total coverage of $100,000, but deposits held in separate ownership accounts are usually not aggregated. To be eligible for payment, the bank must be certified as failed by a member of the state or federal chartering authority. Typically, the depositor does not become actively involved in the process of coverage as the insurance payment is automatically transferred to a new depositing institution.
The FDIC's coverage applies only to deposits, which includes deposits in checking, NOW and savings accounts, deposits in money market accounts and time deposits such as certificates of deposit. The FDIC does not provide coverage for stocks, bonds, securities, mutual funds, life insurance policies, annuities or other types of investment accounts. In addition, the FDIC does not insure US Treasury bills, bonds or notes.
National Credit Union Share Fund
The National Credit Union Share Fund (NCUSIF) is a part of the National Credit Union Administration (NCUA) and operates in basically the same way as the FDIC. All federal credit unions must be insured by the NCUA. The fund insures credit union deposits up to the "Standard Maximum Share Insurance Amount," which is $100,000. Certain retirement accounts, such as IRAs, have coverage of up to $250,000. If a federally insured credit union fails, the NCUSIF will generally pay members within three days.
Farm Credit System Insurance Corporation
The Farm Credit System Insurance Corporation (FCSIC) is a federal agency that insures the payment of principal and interest on Farm Credit System notes, bonds and other financial obligations to investors. The FCSIC administers the Farm Credit Insurance Fund and collects annual premiums from banks that are a part of the Farm Credit System. The FCSIC also has the power to provide assistance to Farm Credit System banks and direct lender associations that are having financial trouble by making loans or contributions, taking on liabilities, buying assets and debt securities and helping with mergers and consolidations.
Conclusion
Federal regulations affect the day-to-day activities of banks, and federal agencies take an active role in examining and supervising certain aspects of banks' conduct. Federally administered insurance provides security for both the lender and the customer, and facilitates openness in banking and increased lending opportunities. If you have questions about bank insurance issues or bank regulation, talk to an attorney.
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