The failure of Silicon Valley Bank (NASDAQ:SIVB) quickly led to the California Department of Financial Protection and Innovation to close the institution last Friday and name the Federal Deposit Insurance Corporation, or FDIC, as the bank’s receiver.
The agency also stepped in to shut down New York-based Signature Bank (NASDAQ:SBNY) on Sunday, informing customers that they will have full access to their deposits.
Benzinga takes a closer look at the FDIC’s role in responding to banking crises, and why the agency is pivotal in maintaining public confidence in the banking system, and protecting the deposits of bank customers.
What FDIC Does: The FDIC is a government agency that insures deposits in banks and savings and loan associations.
The agency provides deposit insurance up to a certain amount per account. This means that if a bank fails, the FDIC will reimburse depositors up to a certain amount, currently that’s $250,000.
The FDIC also insures certain types of investments and has the authority to close down banks that are deemed to be too risky or insolvent. The agency can also provide assistance to troubled banks in the form of loans, guarantees, and other financial assistance. This helps to keep the banks’ operations going while they are trying to restructure their finances and restore their profitability.
In addition to providing assistance to banks, the FDIC also regulates banks and provides consumer protection. The agency provides information to consumers about banking services, how to protect their deposits, and how to identify the signs of an unsafe or unsound bank. The FDIC also has authority to take corrective action against banks that are found to be in violation of laws and regulations.
Also Read: Why Silicon Valley Bank Collapsed: A Simple Explainer
History Of FDIC: The agency was created in 1933 in response to the Great Depression, when banks were failing and people were losing their savings, as part of the Banking Act of 1933.
In 1989, the FDIC was given the authority to regulate state chartered banks that are members of the Federal Reserve System.
In 2008, the agency was given additional responsibilities in response to the financial crisis. It was charged with administering the Troubled Asset Relief Program (TARP) and overseeing the orderly liquidation of underperforming institutions. The FDIC also created the Temporary Liquidity Guarantee Program (TLGP) to guarantee certain deposits and unsecured debt of financial institutions.
Meanwhile, on Sunday, in response to the collapse of SVB, the Federal Reserve announced that it will create a new Bank Term Funding Program (BTFP), which will offer loans of up to one year in length to banks, savings associations, credit unions, and other eligible depository institutions.
Now Read: Cathie Wood Issues Fed A Warning Over SVB Failure, Touts Crypto: ‘Not Surprised That #BTC and #ETH Appreciated’
This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.