WHAT THE FDIC DOES AND WHY IT MATTERS
Deposit insurers like the FDIC cover losses for deposits in the event of a bank failure. In theory, this coverage is capped at US$250,000 in the US and US$100,000 in Canada. In practice, as the failure of Silicon Valley Bank in 2023 made clear, there is no upper limit to this insurance.
This insurance serves two main purposes. First, it protects everyday people and small businesses from risks taken by their banks. Two, it prevents panic, as it means depositors have no reason to rush to withdraw their money before a bank collapses.
The FDIC and its Canadian equivalent, the Canadian Deposit Insurance Corporation, have the authority to intervene when banks fail, ensuring they are wound down in an orderly fashion without a bailout or broader economic disruption.
During the 2008 financial crisis, few mechanisms other than taxpayer-funded bailouts existed to rescue the financial system. Post-crisis reforms, like the Dodd–Frank Act, granted the FDIC more power help address systemically important bank failures with a broader set of tools. Many of these reforms were negotiated at the international level.
Project 2025, a Heritage Foundation plan that has supported many of DOGE’s interventions, has called to repeal these reforms. Dismantling or undermining the FDIC would strip the US of one of its most effective ways to respond to a financial crisis.
The FDIC also plays a role in monitoring large banks, alongside the Federal Reserve and the OCC. At the international level, the FDIC works with foreign regulators to plan for the possibility of a crisis, and to implement solutions if one occurs.
