In the fall of 2007, when the U.S. economy first seemed in peril, I began answering reader queries here on the Business Desk. I still do so occasionally, but this page has expanded to include posts from eminent economists, "far-flung correspondents," and a variety of voices that have intriguing and/or useful things to say about economics, broadly defined. Please feel encouraged to respond to any and all of them.
Question: Exactly who is the FDIC? Who sits on the board? Who do they answer to? What crystal ball do they use to make their decisions? What authority, if any, do they have over banks, large or small? How does the fact that the federal government owns stock in the major banks impact the decisions by the FDIC?
Paul Solman: One at a time. The board members are listed on the FDIC's website, as is so much more about this government agency that you might want to put off reading it until you're on a long plane flight.
The "corporation" answers to Congress, which created it in 1933 to prevent future bank panics.
The crystal ball is manufactured by Madame Arbitrage of Grenoble, France, after a design by Margaret Hamilton, aka the Wicked Witch of the West. The FDIC consults economic data as well - mainly, the solvency of the banks it insures. Do they have sufficient capital to stay in business and pay back depositors if they ask for their money? If a bank has made too many bad loans, it may well not. In that case, the FDIC is empowered to take it over and run the bank itself, in order to get back as much money as possible, with as little disruption as possible. And no panic.
Banks insured by the FDIC are under its jurisdiction.
What impact does government ownership have? Well, when the FDIC takes over a bank, that is COMPLETE government ownership. By contrast, the stakes the Treasury so famously and controversially took in the likes of Citigroup and Goldman Sachs were minority shares - in financial institutions with lots more than just FDIC-insured deposits, and sometimes with no insured deposits at all.