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AFC: The abbreviation for average fixed cost, which is fixed cost per unit of output, found by dividing total fixed cost by the quantity of output. Average fixed cost is one of three related cost averages. The other two are average variable cost and avarage total cost. Average fixed cost decreases with larger quantities of output. Because fixed cost is FIXED and does not change with the quantity of output, a given cost is spread more thinly per unit as quantity increases. A thousand dollars of fixed cost averages out to $10 per unit if only 100 units are produced. But if 10,000 units are produced, then the average shrinks to a mere 10 cents per unit.

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FEDERAL DEPOSIT INSURANCE CORPORATION:

An independent agency of the federal government that insures deposits in banks and other depository institutions which is intended to preserve and promote public confidence in the U.S. financial system. The Federal Deposit Insurance Corporation (FDIC) was created in 1933 in response to the thousands of bank failures that occurred during the Great Depression. It is one of the key agencies, along with the Federal Reserve System and Comptroller of the Currency, responsible regulating the U.S. banking industry.
The Federal Deposit Insurance Corporation (FDIC) insures deposits at banks and similar depository institutions. However, it only insures these sorts of deposits. Other financial instruments, such as equinities, securities, or mutual funds, are not insured by the FDIC. The FDIC is located in Washington, D.C. although it maintains several branch offices around the country.

The FDIC is fully funded (1) by premiums that banks and saving institutions pay for deposit insurance coverage and (2) from earnings on investments in U.S. Treasury securities. As an independent agency, it does not receive funds from the general treasury.

The management body of the FDIC is composed of a five-person Board of Directors. These folks are appointed by the President and confirmed by the Senate with the constraint that no more than three can be from the same political party.

A Bit of History

After the stock market crash of 1929, the first few years of the Great Depression of the 1930s saw the failure of thousands of banks. Banks failed when their liabilities exceeded assets for an extended period, and they were simply forced out of business. As a response, the FDIC was created in 1933 to provide federal government support of bank deposits. The main objective of the FDIC since its creation has been to maintain stability and public confidence in the nation's banking system.

How it Works

  • In principle, the FDIC operates much like any private insurance company. It collects insurance premiums from its customers--the banks--in return for the assurance that it will stand behind, or be ready to pay off, any deposits that the banks cannot.

  • When a bank or saving institution fails and is closed by its chartering authority (which can be the Office of the Comptroller of the Currency, or the Office of Thrift Supervision), the FDIC responds immediately to protect insured depositors.

  • In most cases, the FDIC resolves a failure by selling the deposits and loans of the failed institution to another institution. In this way, customers of the failed institution automatically become customers of the assuming institution. The solution can be costly for the owners of the failed institution, but it is usually a seamless transaction for the customers.

  • In other cases, the FDIC simply pays back the customers of the failed institution the amount of their insured deposit, up to the maximum legal limit. The customers can then redeposit this money in another institution of their choosing.

FDIC Insured and Uninsured

Although insurance by the FDIC is very broad, it has some limitations. The FDIC insures the following bank deposits:

  • Checking Accounts, including money market deposit accounts.

  • Savings Accounts, including passbook accounts.

  • Certificates of Deposit.

  • Retirement Accounts.

The FDIC does not insure the following:

  • Investments in mutual funds which include stock, bond, or money market mutual funds at nonbank financial institutions.

  • Annuities, which are underwritten by insurance companies, but also sold at some banks.

  • Stocks, bonds, Treasury securities or other investment products, whether purchased through a bank, a broker or a dealer.

Other Important Functions

Insuring deposits in banks and saving institutions is not the only function of the FDIC. As part of its efforts to maintain, endorse, and promote public confidence in the U.S. financial system, the FDIC also monitors and addresses risks to the deposit insurance funds and helps to curb the negative effects on the financial system when a bank or saving institution does not operate properly.

Two other important functions of the FDIC include:

  • It examines and supervises thousands of banks and savings institutions, which account for more than half of the institutions in the banking system.

  • It is the primary federal regulator of banks that are chartered by the states that do not join the Federal Reserve System.

<= FEDERAL DEFICIT, AGGREGATE EXPENDITURES DETERMINANTFEDERAL FUNDS =>


Recommended Citation:

FEDERAL DEPOSIT INSURANCE CORPORATION, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: May 22, 2024].


Check Out These Related Terms...

     | financial markets | Comptroller of the Currency |


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     | macroeconomic goals | inflation | circular flow |


And For Further Study...

     | paper economy | Congressional Budget Office | Internal Revenue Service | government functions | investment borrowing | two-sector, three-market circular flow |


Related Websites (Will Open in New Window)...

     | Federal Deposit Insurance Corporation |


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