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The history of the FDIC started in 1933. In 1933, the banking crisis and the Great Depression were still eating up the US economy and confidence. You can read about the FDIC History here. In 1933, the FDIC was officiated created by the Banking Act of 1933. 

Before we discuss the Banking Act which created the FDIC in 1933, let’s recap what happened in 1933 prior to the creation of the FDIC. 

Emergency Banking Act of 1933

After the Great Depression in 1929, the banking system deteriorated in the Winter of 1932-1933. At the time, Franklin D. Roosevelt was just elected as the President in November 1932. Speculations of currency devaluation hurt the economy even more. More banks failed. The US financial system was near total collapse.

On March 9, 1933, the House of Representative passed a bill which the Senate quickly approved and Congress then enacted the Emergency Banking Act of 1933. 

Banking Act of 1933

After the Emergency Banking Act of 1933 came the real Banking Act of 1933 which established the FDIC as a temporary agency to restore public confidence in the banking system as well as stabilize the financial system. A key element of the Banking Act of 1933 was the Glass-Steagal Act. 

What or Who created the FDIC?

Section 8 of the Glass-Steagal Act created the FDIC. 

The Banking Act of 1933 provided many jobs for the newly created entity, the FDIC of 1933. The Banking Act of 1933 required the FDIC to be appointed as the receiver for all national banks and as the receiver for insured state chartered banks as given by state laws. 

In addition to creating the FDIC in 1933, the Banking Act of 1933 also required the FDIC to organize a Deposit Insurance National Bank or DINB for paying off the insured deposits of each closed and failed bank. the DINB is a chartered national bank. The law concerning the DINB was later amended by the Banking Act of 1935. The FDIC was later allowed to pay depositors directly or through an existing bank.

Below is a summary of the FDIC history or the history of the Federal Deposit Insurance Corporation. The FDIC history below also provides the timeline for the FDIC activities throughout its history. Note that the FDIC history below is only a summary, there are much more to the history of the FDIC which are not discussed here. The laws below pertains the early FDIC history. 

Federal Reserve Act of 1913 Congress created the Fed or Federal Reserve System with the Federal Reserve Act of 1913.

Glass-Steagal Act of 1932

The US banking system collapsed with 5,711 banks failing daily from 1921 to 1929. The banking crisis of 1920s was at hand. President Herbert Hoover’s administration recommended two solutions. The first created the Reconstruction Finance Corporation or RFC in January 1932. The second supported the Glass-Steagal Act of 1932. 

Federal Home Loan Bank Act of 1932

The banking system collapse and crisis led to the Great Depression of 1929 which spurred the creation of the Federal Home Loan Bank Act of 1932 to regulate savings and loans. The act also created the Federal Home Loan Bank Board or FHLBB. 

Banking Act and Emergency Banking Act of 1933

Then came the Banking Act and Emergency Banking Act of 1933. The Banking Act of 1933 created the FDIC. The history of the FDIC officially started in 1933. Read about the FDIC in 1933 here. 

Home Owner’s Loan Act of 1933

The Great Depression of 1929 left 40% of home mortgages in default spiking foreclosure rates to record high. Congress then passed the Home Owner’s Loan Act of 1933 to regular savings and loan industry but primarily to protect small homeowners. 

National Housing Act of 1934

In 1934, Congress passed the National Housing Act to reduce number of risky mortgages and loans. Subprime mortgages were heavily regulated. 

The Banking Act of 1935

The Banking Act of 1935 established the FDIC as a permanent agency of the federal government. 

Federal Deposit Insurance Act of 1950

The Federal Deposit Insurance Act of 1950 or the FDI made changes to the Banking Act of 1935 and reduced the power of the FDIC. 

Housing Act of 1954

The Housing Act of 1954 was enacted by Congress to amend the National Housing Act of 1934.

How is an irrevocable trust treated for FDIC insurance purposes?

Irrevocable trusts are another legal ownership category. The interest of each beneficiary in an account established under an irrevocable trust is insured up to $100,000 separately from other accounts held by the grantor, trustee, or beneficiary, if all FDIC requirements are met. Check with the institution holding the account for more information. 

How are Totten trusts and POD and ITF accounts treated for FDIC insurance purposes?

An Informal revocable trust, often called “payable-on death” (POD), “Totten trust,” or “in trust for” (ITF) account is created when the account owner signs an agreement-usually part of the bank’s signature card stating that the funds are payable to one or more beneficiaries upon the owner’s death. 
All deposits that an owner has in both informal (POD, Totten and ITF accounts) and formal (written living or family) revocable trusts are added together for insurance purposes, and the insurance limit is applied to the combined total. 

How are treasury securities (bills, notes, bonds) treated for FDIC insurance purposes?

Treasury securities (bills, notes, and bonds) purchased by an insured depository institution on a customer’s behalf are not FDIC insured. However, the securities remain property of the customer even if the institution closes and is placed in receivership.

How are CD s treated for FDIC insurance purposes?

CD s are insured by the FDIC for up to $100,000 (principal and interest combined) per depositor, per issuer, for each account type (e.g. individual, joint, IRA). 

For example, a joint account owned by two people could be insured for up to $200,000 (if it is the only joint account they own at that institution). 

While Equity-Indexed CD principal is always fully insured, interest is not eligible for FDIC insurance before the final valuation date.

How is a revocable living trust treated for FDIC insurance purposes?

Effective April 1, 2004 the owner of a living trust account will be insured up to $100,000 per beneficiary if all of the following requirements are met:

• The beneficiary must be the owner’s spouse, child, grandchild, parent or sibling,
• The beneficiary must become entitled to his or her interest in the trust when the owner dies, and
• The account title at the bank must indicate the account is held by a living trust.

Example: A father has a living trust leaving all trust assets equally to his three children. This trust ’s account would be insured up to $300,000 since there are three qualifying beneficiaries who would become owners of the trust assets when the owner dies.

If a living trust has more than one owner, coverage would be up to $100,000 per qualifying beneficiary.

Example; A husband and wife are co-owners of a living trust. The trust provides that upon the death of the last owner the funds will pass to their three children equally. This trust ’s deposit account would be insured up to $600,000.

The trust interest of a non-qualifying beneficiary (not the owner’s spouse, child, grandchild, parent or sibling) is included in any coverage that the owner is eligible for at that same bank.

For more information see New Rules for Revocable Living Trusts on the FDIC web site.

For many people, the FDIC and FDIC insurance has always been around. So, who started the FDIC and FDIC insurance? Below is a brief history of the FDIC which answers the question ‘who started the FDIC’.

History of the FDIC and what / who started the FDIC

After the Great Depression of 1929, in 1932-1933, the banking system in the United States deteriorated rapidly. The economic uncertainty of that time brought about many speculative investments with no real values. More and more people liquidated their investments, converting their investments to gold and foreign currencies. The outflux of money from the banking system shattered the already near collapse economy. The election of President Franklin D. Roosevelt in November 1932 did not aid the situation. The fear of the dollar being devalued caused more money to leave the US banking system.

Failed banks in 1933 & the introduction of the Emergency Banking Act of 1933

By March 4, 1933, about 4,000 banks had already failed within the last couple of months. The US banking system was near collapse by March 6. More bank holidays were announced. By March 9, 1933, Congress rushed into a draft plan in an effort to save the US banking system from a total meltdown. The House of Representative passed the bill soon after and the Senate approved it almost equally without any say. The Emergency Banking Act of 1933 was enacted by Congress that very day.

Who started the FDIC?

Following the Emergency Banking Act of 1933, the Banking Act was enacted in June 1933. It was this Banking Act that established the FDIC as a temporary agency to restore the public confidence in the US banking system. In particular, Section 8 of the Glass Steagall Act within the Banking Act created the FDIC through the amendment of the Federal Reserve Act. The Banking Act included many provisions of the duties of the FDIC.