The Federal Deposit Insurance Corporation (FDIC) is a government agency administering federal deposit INSURANCE funds and regulating state-chartered “nonmember” banks. The FDIC is directed by a five-member BOARD OF DIRECTORS, appointed by the U.S. president and approved by the Senate. The FDIC was created in 1934 in response to the collapse of more than 9,000 U.S. banks between 1929 and 1933. Less than two days after Franklin Roosevelt was elected president, he declared a “banking holiday,” closing all banks in the country while Congress enacted legislation to strengthen the BANKING SYSTEM. The FDIC, part of the 1933 Glass-Steagall Act, created insurance for bank depositors. Banks play important roles in any economic system, including acting as FINANCIAL INTERMEDIARIES, aggregating funds from depositors, and making LOANS to businesses for INVESTMENT. In the CIRCULAR FLOW MODEL of an economy, most households save a small portion of their INCOME for varying periods of time, but they do not have the time or expertise needed to evaluate business investment proposals. Without a sound banking system, it is difficult for businesses to find the needed CAPITAL to make investments. Fearful of bank failure, individuals store their savings under the mattress, bury it in jars, or hold precious metals, none of which provides the capital most needed for investment and thus ECONOMIC GROWTH. The bank failures of the GREAT DEPRESSION were not the first experience with problems in the U.S. financial system. Bank panics had occurred almost every 20 years beginning in 1819. Between 1929 and 1933, almost 40 percent of U.S. banks closed their doors, with depositors losing their savings. In 1934 the FDIC began by insuring deposits up to $2,500 per depositor, the goal being to restore bank customers’ confidence. Over time FDIC insurance was raised to the current limit of $100,000 per depositor. Insurance premiums are paid by member banking institutions into an FDIC-managed fund that contains only a small portion of the outstanding guarantees but is backed by the federal government. The $100,000 insurance amount is available per depositor per institution. This means if one customer has savings, checking, and certificate of deposit accounts in an FDIC-insured institution, the sum of that depositor’s accounts is insured for $100,000. (INDIVIDUAL RETIREMENT ACCOUNTS and KEOGH PLANs are insured separately.) During the 1980s, when almost 3,000 banks and SAVINGS AND LOAN ASSOCIATIONS failed, invariably individuals and groups lost parts of their deposits. In one case, a church group saving for a new building had over $200,000 in one account but received only the $100,000 maximum coverage. Since FDIC insurance is applied on a perdepositor per-institution basis, consumers with deposits exceeding $100,000 frequently spread their savings among financial institutions in order to be covered by FDIC insurance. In addition to insuring bank customer deposits, the FDIC monitors about 6,000 state-chartered “nonmember” banks. These are commercial and savings banks that are not members of the FEDERAL RESERVE SYSTEM. The FDIC audits these financial institutions for sound banking practices and, when necessary, manages the liquidation of failed institutions. Typically the FDIC comes in and reorganizes a failed institution by merging it with a financially sound institution. The FDIC will often provide subsidized loans and buy questionable ASSETS of the failed institution from the merger partner. In the purchase-and-assumption method, customers of the failed bank become customers of the new bank, with their deposits continuing to be insured by the FDIC. When the FDIC cannot find another institution to assume the role of the failed institution, it will take over the failed bank, pay depositors, and liquidate the institution’s assets.