FDIC

FUHDICK. Federal. Deposit(ory). Insurance. Corporation.

What is it?

Insurance. Bank insurance. That is...when you deposit the $11,342 of wedding cash that was stuffed in your spouse’s, um...undergarments from the money dance…into your Bank of America account...you don’t have to worry that it will ever just...disappear.

So why is that even a thing?

Well, in the Great Depression-late 20s/early 30s, banks did, in fact, collapse. There was panic. The population raced to banks to withdraw all of their cash to stick under their mattresses. And since banks only carried on hand maybe 5 or 10 percent of their total deposits, the rest was invested in stocks, or loaned for home mortgages, or for the brand-new, hot-off-the-line Butter Churner 3000.

So the banks simply didn’t have the cash when it was demanded by customer depositors, and bad things happened. About a third of all banks failed. The population, for a brief moment in time, lost trust in the American banking system, and that’s really, really bad.

Like...imagine trying to get a mortgage in Somalia today. Tough room.

So the government created the FDIC as a kind of insurance company guaranteeing that bank defaults won't happen again. So the initial insurance limit set was 2,500 bucks per ownership category...but remember that, in 1933, 2,500 bucks could buy you, like…a house. So it was a lot.

A variety of laws were passed in the century since then, and today, the FDIC insures up to $250,000 per ownership category. With that limit in place, banks are more or less insured against anything disastrous befalling them. Although, if that fails, Uncle Sam can just go ahead and…bail ‘em out.

It’s good to be a bank.