What is the role of the FDIC in the event of bank failures?

The FDIC, or Federal Deposit Insurance Corporation, has a critical role in the financial system, specifically in the event of bank failures. When a bank fails, the primary responsibility of the FDIC is to protect depositors by paying them the insured amounts up to the specified limit, which is currently $250,000 per depositor per insured bank. This function is vital as it helps maintain public confidence in the stability of the banking system, ensuring that depositors are not at risk of losing their savings due to a bank's failure.

In addition to reimbursing insured depositors, the FDIC also manages the resolution process of the failed bank. This includes taking control of the bank's assets and liabilities, assessing its financial situation, and determining the best way to handle the bank's closure. This may involve selling the bank to another financial institution or liquidating its assets. The FDIC’s involvement helps minimize disruption to the financial system and aids in restoring stability after a bank failure.

This role is distinct from issuing new bank charters or creating new financial regulations, which are not primary functions of the FDIC during a bank failure. Ensuring banks expand their services is also outside the scope of the FDIC’s responsibilities in the context of bank failures.