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Federal Deposit Insurance Corporation

The FDIC was created by the Glass-Steagall_Act of 1933. The vast number of bank failures had spurred Congress into creating an institution which would guarantee banks. The FDIC currently guarantees checking and savings deposits in member banks upto $100,000 per depositor. In order to receive this benefit member banks must follow certain liquidity and reserve requirements. Banks are classified in 5 groups according to their risk based capital ratio[?]

  • Well capitalized: 10% or higher
  • Adequately capitalized: 8% or higher
  • Undercapitalized: less than 8%
  • Significantly under capitalized: less than 6%
  • Critically under capitalized: less than 2%

When a bank becomes under capitalized the FDIC issues a warning to the bank. When the number drops below 6% the FDIC can change management and force the bank to take other corrective action. When the bank becomes critically under capitalized the FDIC declares the bank insolvent.

See also: Financial supervision, Financial institutions



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