Remarks by
Martin J. Gruenberg,
Chairman, FDIC
to the
People's Bank of China
October 23, 2013
Good morning. I am deeply honored to be speaking before this distinguished audience
today. I thank Governor Zhou for his very generous invitation.
I also want to thank Deputy Governor Liu and his staff for arranging the meetings for
this visit, for their excellent work on our new memorandum of understanding, and for
their gracious hospitality. There is a long history of close collaboration and cooperation
between the People's Bank of China and the FDIC, and I am very pleased to have the
opportunity to build on this strong foundation through our interaction this week.
Today I would like to speak to you about the important role that deposit insurance plays
in maintaining public confidence in – and the stability of – a country's banking system. In
particular, I'm going to talk about deposit insurance in the U.S., the economic crisis that
led to the FDIC’s creation in 1933, our experience with two banking crises since then
and the very considerable expansion of authorities for the FDIC that followed from each
of these crises.
These new authorities were granted in recognition of the fact that the FDIC played a
critical role in maintaining the stability of the financial system in addition to protecting
individual depositors during the crises. The important role of deposit insurance in
maintaining financial stability also has become more widely recognized around the
world in recent years, particularly as a result of the recent crisis, and I'll next talk about
this international experience. I’ll cite examples of the problems that arose in countries
where deposit insurance systems were not credible or effective, and discuss how this
has led to new awareness of the importance of effective systems of deposit insurance,
expanded cooperation among deposit insurers, and the development of international
core principles to guide the design and operation of today’s deposit insurance systems.
Finally, I will close my remarks with a brief discussion of the new FDIC resolution
authorities over systemically important financial institutions (SIFIs) that were provided
under the Dodd-Frank Act in the aftermath of this recent crisis, and the importance of
cross-border cooperation on the resolution of SIFIs.
Deposit Insurance in the U.S.
Let me begin by talking about deposit insurance in the United States. This year marks
the 80th anniversary of the establishment of the FDIC. Over the 80 years that the U.S.
has had a national deposit insurance system, the first in the world I believe, it has
proven to be a foundation of public confidence in our banking system, providing a
crucial element of stability during periods of stress. As a result, from our perspective we
Martin J. Gruenberg,
Chairman, FDIC
to the
People's Bank of China
October 23, 2013
Good morning. I am deeply honored to be speaking before this distinguished audience
today. I thank Governor Zhou for his very generous invitation.
I also want to thank Deputy Governor Liu and his staff for arranging the meetings for
this visit, for their excellent work on our new memorandum of understanding, and for
their gracious hospitality. There is a long history of close collaboration and cooperation
between the People's Bank of China and the FDIC, and I am very pleased to have the
opportunity to build on this strong foundation through our interaction this week.
Today I would like to speak to you about the important role that deposit insurance plays
in maintaining public confidence in – and the stability of – a country's banking system. In
particular, I'm going to talk about deposit insurance in the U.S., the economic crisis that
led to the FDIC’s creation in 1933, our experience with two banking crises since then
and the very considerable expansion of authorities for the FDIC that followed from each
of these crises.
These new authorities were granted in recognition of the fact that the FDIC played a
critical role in maintaining the stability of the financial system in addition to protecting
individual depositors during the crises. The important role of deposit insurance in
maintaining financial stability also has become more widely recognized around the
world in recent years, particularly as a result of the recent crisis, and I'll next talk about
this international experience. I’ll cite examples of the problems that arose in countries
where deposit insurance systems were not credible or effective, and discuss how this
has led to new awareness of the importance of effective systems of deposit insurance,
expanded cooperation among deposit insurers, and the development of international
core principles to guide the design and operation of today’s deposit insurance systems.
Finally, I will close my remarks with a brief discussion of the new FDIC resolution
authorities over systemically important financial institutions (SIFIs) that were provided
under the Dodd-Frank Act in the aftermath of this recent crisis, and the importance of
cross-border cooperation on the resolution of SIFIs.
Deposit Insurance in the U.S.
Let me begin by talking about deposit insurance in the United States. This year marks
the 80th anniversary of the establishment of the FDIC. Over the 80 years that the U.S.
has had a national deposit insurance system, the first in the world I believe, it has
proven to be a foundation of public confidence in our banking system, providing a
crucial element of stability during periods of stress. As a result, from our perspective we
see a great benefit in establishing an explicit deposit insurance system with clear
limitations on coverage to provide certainty and security to depositors.
Creation of the FDIC
Let me turn now to the origins of the FDIC.
Between the 1880s and the early 1930s, the U.S. Congress considered a total of 150
proposals to establish a national deposit insurance system but did not enact any of
them. In the early 1930s, however, the U.S. entered the most severe financial crisis in
its history up to that point. In the first few months of 1933, 4,000 U.S. banks were
closed. As banks began to fail, the public began withdrawing deposits, ultimately
resulting in bank runs, and a cycle of bank liquidity crises and failures. In response,
President Roosevelt declared a bank holiday, essentially forcing all banks to close
temporarily, and Congress created the FDIC. Upon its establishment, the FDIC was
given the authority to provide deposit insurance to banks, to regulate and supervise
state chartered banks, and to resolve failed banks.
The FDIC and national deposit insurance had an immediate, stabilizing effect on the
financial system. Bank failures receded and banking panics became a thing of the past.
People were once again willing to put their deposits in banks. The FDIC is widely
viewed as one of the most successful legacies of that era, and, for over 80 years,
federal deposit insurance in the U.S. has been a foundation of public confidence in the
banking system.
The Banking Crisis of the 1980s and early 1990s
There have been two financial crises in the United States since the 1930s. In the late
1980s and early 1990s, the U.S. experienced a crisis in its savings and loan industry
that resulted in the failure of approximately one-third of U.S. savings and loan
institutions, nearly 1000 total, which are depository institutions, commonly called thrifts,
which specialize in home mortgage lending. This crisis also led to the collapse of the
federal deposit insurance fund established for the savings and loan institutions, and the
expenditure of approximately $140 billion in public funds to make good on the insured
deposits in the failed savings and loan institutions.
Near the end of this crisis, the U.S. Congress enacted major reforms that expanded the
FDIC’s authorities and strengthened our deposit insurance system. These new
authorities included the responsibility for insuring the deposits of thrifts, the authority to
approve and deny deposit insurance coverage to banks and thrifts, backup examination
authority over all insured financial institutions, and authority to charge risk-based
premiums for deposit insurance. Significant reforms to banking regulation also resulted
in the establishment of a system of prompt corrective action, which mandates regulatory
intervention in failing banks as their capital declines.
limitations on coverage to provide certainty and security to depositors.
Creation of the FDIC
Let me turn now to the origins of the FDIC.
Between the 1880s and the early 1930s, the U.S. Congress considered a total of 150
proposals to establish a national deposit insurance system but did not enact any of
them. In the early 1930s, however, the U.S. entered the most severe financial crisis in
its history up to that point. In the first few months of 1933, 4,000 U.S. banks were
closed. As banks began to fail, the public began withdrawing deposits, ultimately
resulting in bank runs, and a cycle of bank liquidity crises and failures. In response,
President Roosevelt declared a bank holiday, essentially forcing all banks to close
temporarily, and Congress created the FDIC. Upon its establishment, the FDIC was
given the authority to provide deposit insurance to banks, to regulate and supervise
state chartered banks, and to resolve failed banks.
The FDIC and national deposit insurance had an immediate, stabilizing effect on the
financial system. Bank failures receded and banking panics became a thing of the past.
People were once again willing to put their deposits in banks. The FDIC is widely
viewed as one of the most successful legacies of that era, and, for over 80 years,
federal deposit insurance in the U.S. has been a foundation of public confidence in the
banking system.
The Banking Crisis of the 1980s and early 1990s
There have been two financial crises in the United States since the 1930s. In the late
1980s and early 1990s, the U.S. experienced a crisis in its savings and loan industry
that resulted in the failure of approximately one-third of U.S. savings and loan
institutions, nearly 1000 total, which are depository institutions, commonly called thrifts,
which specialize in home mortgage lending. This crisis also led to the collapse of the
federal deposit insurance fund established for the savings and loan institutions, and the
expenditure of approximately $140 billion in public funds to make good on the insured
deposits in the failed savings and loan institutions.
Near the end of this crisis, the U.S. Congress enacted major reforms that expanded the
FDIC’s authorities and strengthened our deposit insurance system. These new
authorities included the responsibility for insuring the deposits of thrifts, the authority to
approve and deny deposit insurance coverage to banks and thrifts, backup examination
authority over all insured financial institutions, and authority to charge risk-based
premiums for deposit insurance. Significant reforms to banking regulation also resulted
in the establishment of a system of prompt corrective action, which mandates regulatory
intervention in failing banks as their capital declines.