What is the Federal Deposit Insurance Corporation Improvement Act?
The Federal Deposit Insurance Corporation Improvement Act (FDICIA) is a law passed in 1991 that introduced safeguards for banks and for depositors in the United States banking system. This Act was passed mostly in response to the Savings and Loan Crisis, a financial crisis in the late 1980s where many banks were unable to repay deposits they had taken. FDICIA raised the level of federal deposit insurance coverage from $100,000 to $250,000 per depositor at insured banks. The FDICIA also raised capital requirements of banks and imposed stricter enforcement procedures. This law required banks to maintain a certain amount of capital (assets minus liabilities) relative to their total liabilities. Banks that maintained higher capital ratios were more likely to stay profitable and withstand economic shocks. The FDICIA also introduced tougher penalties for fraud, including jail time for executives whose negligence leads to significant losses for their banks. Furthermore, banks were required to have prompt corrective action plans in place in order to take corrective action quickly when needed. These corrective action plans would allow banks to prevent losses from occurring while also preventing mismanagement. The FDICIA is generally seen as a success in helping the banking industry recover from the Savings and Loan Crisis, as well as in providing depositor protection. The measures included in the Act have helped the banking industry become more stable and secure. As a result, more depositors have become comfortable in depositing their money into banks knowing that their funds are insured and protected by the FDIC.
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