What is the Federal Deposit Insurance Corporation Improvement Act?

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) of 1991 is a law passed by the U.S. Congress that regulates how banks manage their money and protects customer deposits in banks insured by the Federal Deposit Insurance Corporation (FDIC). The law was passed in response to the banking crisis of the late 1970s and 1980s, when thousands of banks failed. The purpose of FDICIA is to ensure the safety and soundness of federal deposit insurance by setting standards for what banks must do in order to be considered “well capitalized.” This includes requirements for risk-based capital, which measures the amount of capital banks must maintain as a percentage of their total assets. The law also requires banks to maintain certain levels of liquidity, meaning they must hold enough cash and other liquid assets to be able to meet customer withdrawals without interruption. The law also strengthens restrictions on insider and other related party transactions, which are transactions that involve parties who are connected to the bank, such as its directors and officers. FDICIA requires banks to put policies in place to prevent these transactions from being used for personal gain. The FDICIA also requires banks to conduct periodic stress tests to ensure they are capable of withstanding economic downturns or other adverse conditions. Stress tests are simulations that test the bank’s ability to remain solvent and meet certain capital targets, even if certain risks materialize. This is designed to help banks anticipate and prepare for potential emergencies. In Kansas, the FDICIA applies to all banks and other financial institutions that are FDIC-insured. FDICIA helps ensure the safety and soundness of banks and provides protection for customers in Kansas and across the U.S.

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What is the Federal Deposit Insurance Corporation Improvement Act?

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