The Federal Deposit Insurance Corporation (FDIC)

Introduction 

The Federal Deposit Insurance Corporation (FIDC) is a government organization in the US that provides insuring for deposits against possible bank failure. The corporation was established in 1933 following the enforcement of the Banking Act. The years before the creation of the FDIC, more than one-third of the banks in America failed resulting in the Great Depression. Therefore, the establishment of the FDIC was a basic means of restoring confidence in the banking system in the country. The initial insurance limit was $2,500, but increased to $250,000 following the enactment of the Dodd–Frank Wall Street Reform and Consumer Protection Act in 2011. The law was a reaction to the financial crisis of 2007-08 bringing significant change in financial regulation. The following report is a corporate analysis of the internal factors that have significant impact on the successful implementation of FDIC’s strategy and objectives. 

Core Competencies 

The mission of the organization identifies four integral roles that highlight its core competencies. In this case, the independent government agency undertakes the role of insuring deposits as a means of maintaining stability and ensuring public confidence in the financial system of the country. This obligation of the organization is a rare and costly practice that provides banks and other financial corporations a safety net in cases of inflation or unexpected crisis in the industry (Al-Zu’bi, Dahiyat, Warrad, Shannak, & Masa’deh, 2012). Insuring the deposits is a primary role of the FDIC as it identifies the importance of making safe and sound investments to prevent scenarios of run on the bank that affected numerous banks during the Great depression. In the practice of insuring these corporations, the government agency would be able to provide cover for organizations experiencing instability (Al-Zu’bi et al., 2012). In this regard, the consumers of these organizations will be able to receive their life savings if the corporation becomes bankrupt. The execution of the vision, mission, and objectives of the company are enforced in this practice as the organization guarantees the protection of the consumer. 

Another major objective of the FDIC is to ensure that large and complex financial institutions are resolvable. In the modern banking regulatory framework, it is evident that organizations are at a high risk of failing. Through excessive business risks like providing too many loans to its customers, the financial company may encounter numerous challenges (Al-Zu’bi et al., 2012). The banks may fail to have enough liquid cash that will enable them to serve the needs of their clients. It is within the FDICs mission and purpose to ensure the resolvability of the financial organization. This practice is a rare competency of the agency that cannot be easily imitated by other corporations. It is evident that by undertaking resolvability planning the FDIC enforces its mission, vision and objectives (Al-Zu’bi et al., 2012). It ensures that the banks can fail in an orderly manner to prevent the risks that may extend to the customers depending on the banks. 

The FDIC assures the public in its mission of its responsibility to manage receiverships. In the event that banks or other financial organizations experience bankruptcy or a high level of debt such that it cannot perform its daily operations, the FDIC takes up the obligation of taking possession of it and selling or liquidating its assets (Al-Zu’bi et al., 2012). Despite the federal agency providing an informed analysis and evaluation of business practice, it is evident that the financial institutions may disregard the advice. The FDIC assures the numerous consumers that depend on these banks that there is no need to panic even in cases where the organization is forced into insolvency (Al-Zu’bi et al., 2012). The employees of the federal agency are highly skilled and dedicated to achieve remarkable results. FDIC is able to cater responsibly to the needs of the public by examining the practices of the receivership and ensure it will pay off the debts owed to the numerous customers. 

FDIC’s Strengths, Weaknesses, Opportunities, & Threats 

On the one hand, the role of the FDIC in the financial industry in the US provides a significant benefit. In its quest to provide up to a limit of $250,000 per depositor per insured bank, the government agency eliminates the incentive of participating in a bank run. The factors that may cause bank runs include excessive loans and withdrawal of cash by majority of the depositors (Read, 2014). Through the participation of the FDIC, the public are not at risk of losing their money kept in the failing banks. During bank runs, the people who receive money are those who are able to make a withdrawal as early as possible. The insured amount per depositor is refunded to the consumers. This action has a negative impact that serves as the weakness of the FDICs practice (Read, 2014). Providing an insurance policy and a safety net for the failing financial organizations, the federal corporation prevents the need for depositors to police bank risk-taking. In the modern financial industry, it is evident that banks will utilize the amount of money deposited by consumers as a means of generating income. The organizations re-invest the amount into the various arenas with the hope of making profits (Read, 2014). The institutions rarely share this information to the customers who only hope that whenever they want to make a withdrawal the bank will provide. Through policing bank risky investments, the depositors themselves may participate in effective control and avoidance of the bank’s bankruptcy. 

The provision of deposit insurance brings about a major threat to the economic stability of a country. One of the major factors that hinders bank managers and senior executives from employing high level of risk in the investments of the firm is the duty to pay back consumers (Read, 2014). However, the elimination of this obligation results in a moral hazard of these leaders. The 1800s is an excellent example of organizations demonstrating a moral hazard. The financial firms would incorporate vast investments using money from depositors, loans, and stockholders as a basic means of sustaining their high profits (Read, 2014). The introduction of a deposit insurance that is as high as $250,000 per depositor is enough of a safety net that could prompt the rise of the behavior in banking organization (Al-Zu’bi et al., 2012). Through the activities and operation of the FDIC, it is evident that there is a major opportunity for ensuring the control and stability of the economy. Banking supervision appears to be an effective means of ensuring the banks do not take unnecessary risks in their operations and attempt to make profits (Read, 2014). The FDIC could prevent the development of the moral hazard by seeking cooperation between the organizations and the federal agency. The role of the FDIC would be to examine risks undertaken by the financial institutions and prevent possibility of going bankrupt. The mutual guaranty program of 1829 employed by the state of Indiana as an alternative to deposit insurance could provide insightful measures to prevent excessive risk taking. 

Resource-Based View (RBV) 

The FDIC acting as an insurer to the numerous banks and other financial organizations requires the companies to pay premiums to qualify for reimbursement of the numerous clients. The federal agency acts as a regular insurance company in the requiring the payment of premiums (Gros & Schoenmaker, 2014). The numerous banks will then receive the services of the FDIC as an effective measure of alleviating the struggle they may experience during the occurrence of risk. The money received acts as capital for use in the development of techniques and measures of assisting the financial corporations. The capital created from the collection of premiums is used to serve multiple purposes including paying its employees among other expenditures. The corporation also includes numerous assets, like buildings and machinery used to serve effectively its duties as an insurer of the banks. The corporate offices of FDIC are an important asset to the enforcement of the company’s vision, mission, and objectives as it enables workers to interact and develop methods of resolvability. 

Another asset for the FDIC is knowledge, which is intangible. The primary role of the federal agency is to promote soundness and safety of the organization’s practices. The company identifies that its various employees are of the highest level of skills and dedication in achieving outstanding results for the various corporations it serves. As a neutral party, the corporations may disclose their important information without the risk of exposure (Gros & Schoenmaker, 2014). The banks and financial institutions understand that the FDIC is not a competitor in the industry and will not disclose its sensitive data to its rivals. The workforce in the federal agency should have extensive knowledge on the numerous investments that financial corporations may undertake as a measure of increasing profits (Gros & Schoenmaker, 2014). Through the information that these workers develop through careful assessment of the financial industry, the organization provides its corporations with advice on various risks that are unnecessary and may lead to bankruptcy. 

For the effective functioning of the FDIC, it s essential they incorporate a hardworking, honest, and skillful workforce. In this practice, the agency identifies the various employees as integral to the achievement of its intended goals. The diverse workforce that incorporates individuals of numerous competencies and skills enables the effective sharing of tasks in the organization. The high level of diversity in labor is an essential factor to the distribution of tasks and responsibilities to various workers. The organization assures its clients that the company is recognized as a leader in promoting and enforcement of public policies associated to the American financial system (Gros & Schoenmaker, 2014). In this case, FDIC will effectively serve the needs of its clients by recognizing possibility of financial crisis. According to Kerstein and Kozberg (2013) predicting bank failures is a difficult task and burden for the FDIC, but with the quality of labor available it can effectively meet this challenge. 

Value Chain Analysis 

The organization identifies the importance of knowledge in the effective implementation of its strategy. In this case, unlike private corporations, the FDIC has extensive access to information and strategic practices of the banks. It has effective capability to understand the varied ways of predicting the possible survival or failure of the organizations that insure with it (Sherraden et al., 2012). The company incorporates this knowledge as an effective means of alleviating any competition from the industry. Private industries that attempt to compete with FDIC may not be able to offset the high cost of insuring the organizations. Majority of the banks are worth billions of dollars and the amount of depository cash available could be in the same magnitude. However, through extensive amount of capital available to the federal agency it can undertake measures of covering the risk of failure (Sherraden et al., 2012). The organization also identifies integrity as an importance resource for operation in the industry. It is noted that private corporations may have a fall out and result in direct rivalry in the same field. The FDIC assures its clients that it does not intend to act as a competitor, rather its primary role in the industry is to prevent a national financial crisis and protection of the consumer (Sherraden et al., 2012). 

Conclusion 

The above internal analysis of the Federal Deposit Insurance Corporation is a clear indicator of the benefit it provides to the national economy and the financial corporations it serves. The FDIC undertakes the primary role of inuring deposits such that in the event the bank fails, its clients do not risk losing their money and instead will be reimbursed. According to this practice, the premiums, knowledge, and labor force available for the FDIC serve as essential assets to implement effectively its vision, mission, and objectives. The resources available for use also ensure that the federal agency does not entertain significant competition from private corporations. In this regard, it maintains dominance and competitive advantage in the industry. 

References 

Al-Zu’bi, Z. M. F., Dahiyat, S. E., Warrad, T., Shannak, R. O., & Masa’deh, R. M. (2012). Investigating the Effect of Foreign Direct Investment Technology Transfer on Mass Customization Capability in Jordan’s Manufacturing Sector. International Research Journal of Finance and Economics, 94 (1), 79-90. 

Gros, D., & Schoenmaker, D. (2014). European deposit insurance and resolution in the banking union. JCMS: Journal of Common Market Studies, 52 (3), 529-546. 

Kerstein, J., & Kozberg, A. (2013). Using accounting proxies of proprietary FDIC ratings to predict bank failures and enforcement actions during the recent financial crisis. Journal of Accounting, Auditing & Finance, 28 (2), 128-151. 

Read, J. (2014). Followership at the FDIC: A Case Study. Journal of Leadership Education, 13 (4). 

Sherraden, M. S., Huang, J., Frey, J. J., Birkenmaier, J., Callahan, C., Clancy, M. M., & Sherraden, M. (2015). Financial capability and asset building for all. Working Paper No. 13, Grand Challenges for Social Work Initiative .