Federal Deposit Insurance Corporation
Before 1933, and particularly during the period 1929—1933, bank failures were not uncommon. 1 a bank overextended itself in creating credit or if several of its important loans could not be 2 , depositors in the bank would frequently become panicky and begin to make large withdrawals. 3 the bank had only a small number of its deposits backed by currency, the bank would soon be unable to meet withdrawals, and most depositors 4 their money. Most frequently a bank merely needed time to improve its cash position by 5 some of its loans and not making additional ones. In 1933, the number of bank failures 6 a peak, forcing the federal government to intervene and 7 the banks temporarily. To help restore the public"s confidence 8 banks and strengthen the banking community, Congress passed legislation setting up the Federal Deposit Insurance Corporation. 9 corporation, an agency of the federal government, now insures over 90 percent of all mutual savings and commercial bank deposits for 10 $100,000 per deposit. The FDIC has 11 its insurance fund by charging member institutions one-twelfth of 1 percent of their total deposits.
As a result of the protection provided by the FDIC and through other kinds of supervision, bank failures have been 12 to a few isolated instances. When deposits are federally insured, people 13 rush to withdraw their money if they 14 the financial condition of their bank. The delay gives the banks the necessary time to adjust their cash credit balance, and this action helps to reduce the 15 of bankruptcy.