Financial companies

Financial companies are established players on the major markets of the world. They run the gauntlet from capital investment firms to more ordinary banks and credit unions. The role of each company is complex and it changes the financial oversight that the company is subject to. The restrictions on a capital investment firm are much looser than those on a bank.

The reason that different financial companies receive different levels of oversight is the Federal Deposit Insurance Corporation; or FDIC for short. The FDIC was instituted after the bank runs of the late 1920’s as one of the means by which American citizens could restore their faith in the banking system. The financial depression of the time started because of multiple causes, but one key cause was people making “runs on the bank”. The rumor had spread that the banks could not cover their deposits, this resulted in people rushing to the bank to withdraw their money… which in turn meant that the banks did not have enough on hand to cover everyone (they never keep 100% cash reserves).

The FDIC insures deposits, currently up to an amount of $250,000. If the bank cannot pay back the money, the FDIC takes over the claim and pays back the money to the customer. In exchange for this protection the bank pays into the FDIC’s premium fund, which holds money against such occurrences. It also agrees to be one of the financial companies overseen by the regulatory power of the federal government.