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timeline of the history of deposits at the FDIC calling out the years 1933, 1938 and 2023.

A History of The Deposit Insurance Fund

The Origin of the Deposit Insurance Fund

The Deposit Insurance Fund, or DIF, is the mechanism by which your deposits up to $250,000 per tax ID, per institution, are protected from loss due to bank failure. The Deposit Insurance Fund was established along with the FDIC as part of The Banking Act of 1933, and was a direct response to the financial turmoil experienced during The Great Depression. 

This piece of legislation was designed “to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.” Surprisingly, the provision that created the FDIC was a very unpopular measure at the time, and President Roosevelt threatened to veto the bill as a result. It was included in the end, primarily to protect small rural banks1

The bill was signed into law on June 16th, 1933. 

The Early FDIC

Since its inception, the FDIC and the DIF have been the subject of numerous pieces of legislation, and regulations and standards have changed significantly over time. In the early days, the FDIC was primarily focused on ensuring banks were operating at an “MVP” status – or providing the minimum viable product to keep deposits safe and remain operational. After establishing those requirements, the FDIC moved to focusing on capital adequacy in smaller banks, and to building up the DIF in the event of additional banking failures2

In the years to come, the FDIC and legislators would work to establish the basis for what is now known as the FDIC Assessment, which is the examination process by which banks are evaluated for their safety and soundness, and charged a fee that is used to fund the DIF. In 1938 the Secretary of the Treasury called for a conference of bank examiners, and they established then early nomenclature of asset classification that is still used today. The assessment process and the classification of bank safety and soundness continues to be the subject of debates in 2024 – as experts and legislators look at ways to protect depositor funds in the event of bank failures.

Present Day Bank Assessments and the Deposit Insurance Fund

Currently the DIF is funded by banks via yearly “assessments” where the bank’s safety and soundness is evaluated by reviewing its capitalization and supervisory reports. Banks that are well capitalized and receive good supervisory reports (which is a score known as a CAMELS score) pay lower assessment fees, as they present less risk to the banking system. Banks that are under capitalized or have unsatisfactory supervisory reports pay higher assessment fees, to cover the potential risk they pose to the banking system.

As of Q4 of 2023, there was approximately $121 Billion dollars in the Deposit Insurance fund3, and roughly $7.7 Trillion dollars of uninsured deposits throughout the banking system4. This means of course, that the fund cannot cover the majority of the uninsured deposits in the US – which is why depositors need to remain vigilant about the safety of their deposits. 

Wondering about the safety of your deposits? Find out where you stand. Contact Ampersand for a FREE risk assessment.

  1. Federal Reserve History: Banking Act of 1933 (Glass-Steagall) ↩︎
  2. FDIC: Bank Historical Brief, Chapter 4 ↩︎
  3. FDIC: Quarterly Banking Profile ↩︎
  4. FDIC: Options for Deposit Insurance Reform ↩︎

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