Bank Deposits Guaranteed Up to $250,000 – Maybe

Congress created the Federal Deposit Insurance Corporation (FDIC) in 1933 to ensure taxpayers were not on the hook for losses to depositors. Today, FDIC stickers in every bank in America proclaim “Each depositor is insured to at least $250,000.”  

Is it possible for bank depositors to take losses on their deposits? Yes.  

Banks insure their own deposits through contributions to an insurance fund. Banks and the general public both falsely believe that the government will “pony-up” the cash if the insurance fund is depleted and protect taxpayers from a loss on their deposits.

However, Congress has never enacted a provision in law stating that insured deposits are guaranteed by the full faith and credit of the United States.

 Congress has never legally guaranteed deposits.

 Congress wants people to have “confidence” in the banking system and adopted a joint resolution in 1982 stating that it was the “sense of Congress” that insured deposits were backed by the credit of the United States. However, this resolution never became legal binding. Henry Steagall, chairman of the House Banking Committee described the situation succinctly “I do not mean to be understood as favoring a government guaranty of bank deposits,” he said. “I do not. I have never favored such a plan.”

Let’s hope the banking and government-debt crisis in Cyrus doesn’t happen in the United States.