Congressional Proposals

• From 1866 to 1933, approximately 150 proposals were introduced in Congress for insuring bank deposits, with most proposals elicited by various financial crises. Three methods were introduced within the bills that provided for depositor protection. Approximately 118 bills called for an insurance fund in which bank deposit losses would be paid, 22 provided for the U.S. government to guarantee deposits and 10 bills required banks to purchase surety bonds.
  
  

Developments Prior to 1933

• From 1921 through 1929, up to 600 U.S. banks had failed annually. These failures were not seen as much of a concern because they were mostly small rural banks with bad management. However, a wave of bank failures in the latter half of 1930 led to widespread attempts to convert bank deposits into cash. This conversion led to a decrease of cash, leading to less funds being available to communities. Confidence in banks during this time began to decrease significantly.
  
  

Banking Crisis of 1933

• The condition of banks in the United States began to deteriorate very quickly during the winter of 1932-1933 during the Depression. There was no single event that precipitated the events that unfolded at this time, but various actions led to banks' liquidity needs. This included the conversion of Federal Reserve notes and deposits to gold. As a result, banks around the country experienced a surge in withdrawal demands that started a nationwide panic.
  
  

Banking Act of 1933

• The Federal Deposit Insurance Corporation (FDIC) was created by section 12B of the Federal Reserve Act. This Act defined how the FDIC was to be organized as well as establishing its duties and functions. A temporary insurance deposit plan was also included in the act. Initially, this plan provided limited protection of $2,500 for each individual that had deposits in a member bank. The Banking Act of 1935 established permanent protection for bank deposits.
  
  

Temporary Federal Deposit Insurance Fund

• Although the Banking Act was signed into law in 1933, the actual insurance for deposits that were in FDIC member banks did not start until Jan. 1, 1934. When the Temporary Federal Insurance Fund opened, 13,201 banks were either insured or approved for insurance. The Temporary Federal Deposit Insurance Fund expired and was replaced on July 1, 1935, with a permanent insurance plan.