Your October 7, 1987 letter asks whether the full faith and credit of the United States Government stands behind the Federal Deposit Insurance Corporation and its deposit insurance fund.... I stated that a joint resolution of Congress (H.R. Con. Res. 290) adopted in March 1982...because of its status as a non-binding resolution, did not serve to create any legal liability on the part of the United States Government to support the funds. You now ask whether Congress has passed a statute that makes the United States Government legally liable for any and all obligations of the FDIC.Congress PROBABLY will back the FDIC, but legally it is not required to do so, nor are the courts legally required to support any depositor's claim against the FDIC for funds, if insurance funds are not available.
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[I]t is our opinion that Title IX of CEBA merely represents an expression of the intent of Congress to support the FDIC's deposit insurance fund should the need arise.
Additionally, there is payee (creditor) risk. The FDIC states, "In a payoff, however, any outstanding transactions or checks presented after the bank has closed cannot be paid or charged against the account."
Any merchant who does business with a customer who is using a debit card or check and the bank fails before the item clears, will not be paid and will have to seek out the customer for payment.
A similar post was added as a comment to an online Time article by Justin Fox about FDIC insurance at http://curiouscapitalist.blogs.time.com/2009/08/27/the-meaningless-crisis-at-the-fdics-meaningless-insurance-fund/
"FDIC deposit insurance is backed by the full faith and credit of the United States government. This means that the resources of the United States government stand behind FDIC-insured depositors." http://www.fdic.gov/consumers/banking/confidence/symbol.html
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DeleteDespite the statement by the FDIC and some of its previous chairmen that its insurance fund is backed by the full faith and credit of the US, that is only the FDIC's view and it is not written into law. The FDIC's opinion does not bind the US government. The FDIC is an independent agency of the government funded by the banks it insures. The insured banks are assessed for the insurance fund but the dollars in the fund are much less than the total of US insured deposits. The FDIC can borrow from the US Treasury and other government entities if it is short of funds to pay insurance claims, but its primary source of insurance funds is the assessment against the banks.
While the FDIC has never reneged on a deposit insurance claim to date, there is no legal obligation binding the US government to back the insured deposits if the FDIC is short of funds and it cannot borrow to meet its shortfall.
The legal opinion cited in my post above is still true. It maybe common knowledge that the US government backs FDIC insurance with its full faith and credit, but the US is not legally bound to do so. It is only a moral obligation. It is not a legal obligation as is usually meant by the term "full faith and credit."
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