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Deposit insurance still works

By Marcie Geffner ·
Monday, October 4, 2010
Posted: 11 am ET


That’s how many dead banks are now on’s list of 2010 bank failures.

New to the list in September were nine banks: three in Georgia, two in Florida and one each in Washington, Wisconsin, Ohio and New Jersey.

Yet there is a silver lining: Despite the woefulness of the bank failures, the pain inflicted on employees who may have lost their jobs and the inconvenience suffered by customers, the Federal Deposit Insurance Corp. deposit insurance system still works -- just as it has since it was started in 1933.

In fact, no one has ever lost a cent of insured money because of a bank failure since the start of FDIC insurance, according to the agency’s website. That’s not to say no bank depositor has ever lost money, but rather that the basic coverage, up the limits, has functioned exactly as it was intended to do.

While the U.S. economy may seem bleak today, a look back at 1932 through 1934, courtesy of the FDIC website’s history section, illustrates how much worse things were back when the agency was created.

In 1932, the interest rate on U.S. Treasury bills went negative because investors were willing to take a loss to be sure their money was safe. Unemployment was 25 percent. Bank runs and closings were common, and money was so scarce that barter became a form of exchange. The next year, approximately 4,000 commercial banks and 1,700 savings and loan associations failed.

FDIC deposit insurance went into effect Jan. 1, 1934. The initial level of insurance was $2,500, an amount that was doubled six months later to $5,000 and doubled again to $10,000 in 1950. The limit was then increased periodically up to $100,000 in 1980. Today, deposits are FDIC-insured up to $250,000.

The first disbursement of FDIC insurance occurred July 5, 1934, according to the agency’s website. The depositor was Mrs. Lydia Lobsiger, whose money was lost when Fond Du Lac State Bank in East Peoria, Ill., failed. A photograph of Mrs. Lobsiger, taken at the time, is now posted as a digital image on the FDIC website.

One has to wonder what she would think or would have thought of that.

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