The Federal Deposit Insurance Corporation (FDIC) is an insurance company that is funded by the banks. Assuming that the big banks do not fail, it is a system that works. However, the FDIC insurance fund is $125 billion, and that is only a small percentage of the insured deposits that are out there. The entire world banking system is tied together, and that is a problem because one big domino falling could crash the entire financial system. Long story short, no bank is on an island by itself. What happens to one financial institution happens to all of them.
If a financial collapse occurred within the banking system, one of two things would happen. You would either be ‘bailed-in’ or ‘bailed out.’ What is the difference between the two? Find out that and much more from host Lou Scatigna, CFP® in this segment from The Financial Physician.