If you have a bank account in the United States, your deposits are almost certainly insured by a U.S. government agency called the Federal Deposit Insurance Corporation.
FDIC deposit insurance protects your deposits in the event your bank fails or becomes insolvent, so if your bank isn’t FDIC-insured, you should switch as soon as possible. Still, it’s reasonable to wonder just how reliable FDIC insurance really is. If the economy takes a nosedive and a ton of banks fail, can you count on the FDIC to make you whole?
The short answer is, yes, FDIC deposit insurance is very reliable. Since its inception in 1934, the FDIC has never failed to fully compensate customers of failed banks for deposits up to the maximum insurance amount, which currently sits at $250,000 per account owner, per bank. But that doesn’t mean the FDIC won’t fall down on the job in the future.
A deep dive into the FDIC’s performance since 2002, a period that includes the worst financial crisis since the Great Depression, offers some clues as to how its deposit insurance fund responds to acute economic stress.
FDIC Bank Statistics: How Has the FDIC’s Deposit Insurance Fund Balance Changed Since 2002?
First, let’s look at how the FDIC’s deposit insurance fund balance has changed since 2002.
Member-FDIC banks continually pay into the fund, similar to how employers pay into state unemployment insurance funds. In good times, the fund’s balance is comfortably in the black. In bad times, like the Great Financial Crisis of the late 2000s, the balance can go negative. When that happens, the federal government acts as a backstop so that the FDIC can keep making bank customers whole.
Before the Great Financial Crisis, the FDIC’s deposit insurance fund balance remained more or less steady on either side of $50 billion.
That changed in a hurry beginning in late 2007. Between January 2008 and December 2010, the financial crisis forced more than 300 banks out of business. The FDIC deposit insurance buckled under the pressure, falling from $52.4 billion in 2007 to -$20.9 billion in 2009.
Thanks to federal backstopping, a focused plan to regain the fund’s solvency, and the passing of the crisis’ acute phase, the FDIC’s deposit insurance fund balance recovered a bit in 2010 (rising to -$7.4 billion). It turned positive in 2011, to the tune of $11.8 billion.
Since then, the FDIC’s deposit insurance fund has steadily grown, albeit at a slower pace since 2020 or so. The most recent balance figure, in late 2022, was $125.5 billion. That’s at least partly due to the fact that only eight banks have failed since 2017, far below the historical rate.
How Have Total FDIC-Insured Bank Deposits Changed Since 2002?
The trend in total FDIC-insured deposit balances looks different than the trend in the FDIC’s actual deposit insurance fund balance. It rose steadily from about $3.38 trillion in 2002 to $4.75 trillion in 2008, then accelerated into the Great Financial Crisis and its aftermath. It notched a temporary high of $7.4 trillion in 2012.
Then the total FDIC deposit insurance balance did something unexpected: It fell to about $6 trillion in 2013. The reasons for this aren’t totally clear, but this drop did coincide with an economic reawakening that saw newly optimistic consumers put more money into stocks and housing. That money largely came from bank deposits, which swelled as consumers pulled out of riskier investments during the Great Financial Crisis and its aftermath.
It’s worth noting that the number of banks in the U.S. steadily declined during the entire survey period. So even as total FDIC-insured deposits increased (2012-13 blip aside), the share of FDIC-insured deposits per insured bank rose even faster.
How Has the FDIC’s Reserve Ratio Changed Since 2002?
Officially known as the Designated Reserve Ratio or DRR, the FDIC’s reserve ratio is the present value of the deposit insurance fund divided by the estimated total deposit balance at member-FDIC institutions. This is a moving target, but given the size of both the deposit insurance fund and total deposit balances, it’s not a particularly volatile one.
The FDIC’s DRR target — the ratio at which the deposit insurance fund is considered “full” — is 2%. At a DRR of 2%, the FDIC’s bank assessment rates decline in recognition that the fund is healthy. They decline further if the ratio surpasses 2.5%.
Eventually, some combination of lower assessment rates, growing deposit balances at member institutions, and payouts following bank failures reverses the upward trend. When the DRR falls back below 2%, bank assessments increase again, and equilibrium is restored (at least in theory).
In reality, the 2% DRR target is aspirational. The closest the reserve ratio came since 2022 was 1.41% in 2019. It remained below 1% from 2008 to 2013, though it was only in negative territory from 2009 to 2010, when it hit a low of -0.36%.
Based on historical trends outside the Great Financial Crisis and its aftermath, the DRR’s natural equilibrium appears to fall between 1.2% and 1.4%. That seems more than adequate during normal times, particularly as the annual bank failure rate continues to fall.
How Many FDIC-Insured Banks Have Failed Since 2002?
From 2002 to late 2022, 557 member-FDIC banks failed. Most of these failures (over 400) came between 2008 and 2012, during the Great Financial Crisis and its aftermath. Otherwise, bank failures have come in dribs and drabs rather than waves.
The bank failure rate has been particularly low since 2017. Just eight institutions have failed since then — four each in 2019 and 2020. Remarkably, those 2020 failures were the only washouts associated with the COVID-19 pandemic, which sent the economy into a deep but mercifully brief recession.
Another way to visualize bank failures over time is to look at the total estimated losses for FDIC-insured institutions. This shows us the relative size of failed banks in any given year and provides more information about the “shape” of bank failures.
Total estimated losses for FDIC-insured institutions skyrocketed to nearly $400 billion in 2008, at the outset of the Great Financial Crisis. This was almost entirely due to the failure of Washington Mutual, which had more than $300 billion in assets when it hit the skids. The failure of IndyMac, a major mortgage lender with about $32 billion in assets, didn’t help either.
These blockbuster failures put added stress on the financial system and contributed to a bigger wave of smaller bank closures. That wave crested in 2010, when 157 banks failed — though total estimated losses for 2010 didn’t even break $100 billion.
How Much Money Has the FDIC’s Deposit Insurance Fund Lost Since 2002?
The FDIC deposit insurance fund has lost about $73.38 billion since 2002. This is an estimate because, again, the fund balance is a moving target, but it’s likely within a few tens of millions of the actual total.
Looking at the graph, you can see that the FDIC deposit insurance fund’s total estimated losses metric closely tracks estimated losses for member-FDIC institutions. The graph shape is very similar. It spiked in 2008 with the twin failures of IndyMac and Washington Mutual, then settling back into a normal pattern within a few years.
The difference here is that the FDIC deposit insurance fund doesn’t have to replace all assets lost by failed banks, just covered customer deposits. So the FDIC’s actual losses are an order of magnitude less than the banks’ themselves. The highest annual figure was $25.8 billion in — wait for it — 2008.
Final Word
The FDIC’s deposit insurance fund hasn’t met its target reserve ratio of 2% in more than 20 years. It hasn’t even come close.
So should you be worried that it won’t be there to back you up if your bank fails?
Personally, I wouldn’t be. At least, not in the near future. Banks fail much more rarely than they used to — just eight since 2017. Even during acute financial crises, such as occurred in the late 2000s, the FDIC made depositors whole without breaking a sweat. (Though the federal government did have to provide emergency funding for those rescues.)
It would take a financial crisis significantly worse than this to threaten the FDIC’s solvency, and any sort of breakdown would likely call the U.S. government’s reliability into question as well. In fact, the biggest risk to the FDIC framework is likely a U.S. government debt default, which would complicate (and perhaps make impossible) a federal rescue.
That could come sooner than we’d like. But for now, don’t lose sleep over it. There are more important things to worry about, financially speaking.
