First Republic Calls In a Favor

I mostly think of the Federal Deposit Insurance Corp. as a US government regulator that provides a government backstop on bank deposits. If a bank fails, the government — the FDIC — will come in and take it over and pay out all depositors (up to $250,000 each) with government money. This backstop is what makes bank deposits safe, what makes them money: An FDIC-insured bank account has no credit risk, because it is backed by the US government’s ability to print dollars. 

There is another way to think about it, though, which is that the FDIC is a sort of mutual-aid program among banks. If a bank fails, the FDIC will take it over and pay out any insured deposits, but the money does not come from a government printing press but from the FDIC’s own separate insurance fund. And this insurance fund, in turn, comes from the banks: It “is funded mainly through quarterly assessments on insured banks,” with each US bank paying some money every quarter based on its size and the risk it poses to the financial system.