FDIC stands for the Federal Deposit Insurance Corporation which serves the role of preserving as well as promoting a wide range of public confidences within the U.S. financial system.
This is done by ensuring that the particular deposits which are made in the banks along with the thrift institutions amount to nearly $250,000 by undergoing a thorough identification monitoring procedure that enables to address various risk strategies which might be targeted towards the deposit insurance oriented funds.
|Provide people with a greater confidence regarding the financial system||FDIC has led to mismanagement of the financial sectors|
|Ensures to respond immediately during sudden institutional failures||FDIC often causes moral kinds of hazard|
|Ensures soundness and safety of the financial system||Less flexibility pertaining to transactions|
|Examines compliances with the help of consumer protection laws||Limited services can create a negative impact|
|Examines compliances with the help of consumer protection laws|
|Complete protection of the online accounts|
Advantages of FDIC:
• Provide people with a greater confidence regarding the financial system:
The FDIC benefits a large number of people on a worldwide scale by providing them complete assurance regarding the working strategies of the financial system. They have certainly ensured that the banking systems do no stop functioning even amidst any kind of internal failures.
This helped people to understand the importance of the FDIC that can never fail to provide complete customer oriented services and therefore, ensure to build their knowledge regarding the financial system and it’s safety measures.
• Ensures to respond immediately during sudden institutional failures:
In order to provide complete protection to the insured depositors, the FDIC takes up complete responsibility in responding as soon as possible during any kind of such situations which might involve a bank undergoing and suffering due to certain institutional failures.
Such institutions are generally closed by their respective chartering authority. Therefore, the FDIC makes use of a number of options that are available for them to resolve such failures.
• Ensures soundness and safety of the financial system:
The FDIC ensures to conduct detailed analysis for supervising the working strategies of nearly 4,000 banks as well as savings banks. This is done for providing complete protection and operational soundness to the internal systems working within the financial institutions. The FDIC serves a crucial purpose of providing all kinds of assistance as the primary financial regulator of the banking systems which are especially chartered.
• Examines compliances with the help of consumer protection laws:
The FDIC is known for examining a large number of banking institutions for the specific compliances which are regulated as per the norms and policies of the consumer protection laws.
This also includes the Fair Credit Billing Act, the Fair Credit Reporting Act as well as the Fair Debt Collection Practices Act. They also examine the financial sectors for compliances which especially help to fulfill the credit requirements of the concerned communities.
• Ensures to make the process of deposition an easy one for the customers:
By providing complete insurance for deposits, FDIC makes sure that they can take care of all kinds of protection against such loopholes which might otherwise threaten the safety of the financial information of the customers. However, they make the entire process of deposition an extremely convenient one for all the individuals who makes insurance deposits.
• Complete protection of the online accounts:
FDIC is known for having being subjected to strict rules and regulations which ultimately helps in assuring complete protection of the financial accounts of the depositors. Therefore, they ensure that no security oriented measures come up that pose a threat to the important documentation of the depositors.
Disadvantages of FDIC:
• FDIC has led to mismanagement of the financial sectors:
Due to the fact that a number of financial institutions have undergone serious failures over the years, particularly during the 1950’s and the 60’s, FDIC has ultimately been subjected to a number of mismanagements that have led to cause serious issues within the financial sectors. This has also resulted in the propping up of a large number of uncompetitive banks.
• FDIC often causes moral kinds of hazard:
The FDIC has resulted in a number of moral hazards that have led to motivating various bank managements to undertake potentially bigger risk strategies. This has been done because of the fact that their depositors have been carefully insured.
Such moral hazards also arose because of the earned profits from the financial income of other people. Such money might belong to the depositors of to the stockholders.
• Less flexibility pertaining to transactions:
The entire process of transaction may become an intricate one for a number of depositors who might find difficulty in retaining a flexible transaction process. There are many such problems which may arise from such complex transaction methods which might ultimately result in making the entire process a cumbersome one while checking the bank’s policy measures pertaining to the FDIC.
• Limited services can create a negative impact:
There are many such banking institutions which might not provide the facilities of retaining all kinds of comprehensive finance oriented services which most of the traditional banks are seen to offer pertaining to the norms and rules of FDIC.
Therefore, the limitation in their services like not providing brokerage accounts and others can heavily impact the financial institution.
With the changes brought about by the Banking Act during the year 1933, a new financial agency was established under the name of the Federal Deposit Insurance Corporation (FDIC). This provided complete assurance regarding the bank deposits which would be made in order to make sure that the financial sectors can avoid any such situations pertaining to the banks being run by the depositors.