Thought # 16

Thought # 16 March 2009
Author: Bill Thurston

The Federal Deposit Insurance Corporation (FDIC).

The Federal Deposit Insurance Corporation is an independent agent of the United States Government which guarantees your money if your bank is a FDIC member bank. Insured deposits are backed by the full faith and credit of the United States.

What does that really mean?

· Is your bank FDIC insured? Check at http://www2.fdic.gov/IDASP/ .

· If your bank is a member bank, you are insured up to $250,000 per depositor per bank. The FDIC has never defaulted on this guarantee since its inception in 1933. If you have $500,000, put it into 2 different banks or under two different depositor accounts in the same bank and all of it will be guaranteed (check with your banker to make sure of this). If a bank "fails", usually FDIC people show up at the end of the business day on Fridays and give the bank employees the news. When you return to your bank on Saturday or Monday, you are greeted by FDIC people or new bank people, if the bank's assets are turned over to a new bank, and you can get your money if you want it.

· FDIC insurance covers all deposit accounts including checking, NOW, and savings accounts, money market deposit accounts and certificates of deposit (CDs) up to the insurance limit. The FDIC does not insure the money you invest in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if you purchased these products from an insured bank or savings association.

What is the FDIC mission? ( http://www.fdic.gov/about/mission/index.html )

· The Federal Deposit Insurance Corporation (FDIC) is an independent agency created by the Congress that maintains the stability and public confidence in the nation’s financial system by insuring deposits, examining and supervising financial institutions, and managing receiverships.

What does this mission really mean?

· It mean they want to make you feel safe with your money in one of their member banks so you will do business with them.

· It means they will monitor the member banks and make sure they are using good banking processes so they have a low likelihood of failure.

· It means if a bank does fail and go into receivership, the FDIC will clean up the mess by giving your money back and selling the bank assets or selling the bank to another bank. These two methods are called Payoff Method and Purchase and Assumption Method.

Are there any problem with the FDIC?

· Just like any other insurance business, the FDIC gets paid a premium by its members (the member banks). This payment is to pay for FDIC operations and to cover your money in their members banks if they fail. Remember that your bank doesn't keep enough money in the bank to cover all their deposit accounts. Most of the banks didn't pay their premiums from 1996 to 2006 ( boston.com article ). According to the article, a full 95% of banks didn't pay their required premiums between 1996 and 2006. So now the FDIC is in financial trouble and they feel they will run out of money in less than 6 months. Because the banks didn't pay the premiums, it looks like we the tax payer will bail them out.

· The FDIC is trying to fix things by raised the fees paid by banks and they also levied a hefty emergency premium to raise $27 billion this year. "We're taking steps today to ensure that the deposit insurance system remains sound," FDIC Chairman Sheila Bair said at a board meeting to vote on the changes. "These steps are necessary because banks and not taxpayers are expected to fund the system."

· The law requires the FDIC insurance fund to be maintained at a certain minimum level of 1.15 percent of total insured deposits but it fell below that minimum in 2008. That mean they are breaking our law.

· The FDIC as of December 2008 had about $20 billion. But if the FDIC suddenly had to take over a giant bank such as Citigroup or Bank of America, the fund would be drained "in a flash," said Cornelius Hurley, director of the Boston University law school's Morin Center for Banking and Financial Law.

· So how much money is in our banks that are deposits from people like you and me and guaranteed by the FDIC? The answer is about $5.7 trillion http://www.federalreserve.gov/releases/h8/Current/. Sometimes these number get so large, it's hard to understand the magnitude but it's like the FDIC having $20 to cover a possible debt of $5,700.

A final thought

· We certainly have heard our presidents condemnation of lobbyists. Well,

· the FDIC said on Monday March 16 2009 that it has created a new position to help shape the agency's role, as lawmakers overhaul the U.S. financial regulatory system. The FDIC appointed Paul Nash as deputy to the chairman for external affairs, where he will help create the FDIC's legislative initiatives and oversee the FDIC's problem resolution services for banks. Nash was previously a top lobbyist for Verizon Wireless.

· FDIC just hired a lobbyist!

On the lighter side, did you know you could buy houses and office furniture from the FDIC?

Check it out at http://www.fdic.gov/buying/index.html.

Send this Thought to someone you know.
Get a Free Subscription
Go to the Archived Thoughts
Submit a Thought for Publication
Unsubscribe
Contact us by mail:
Thurston Group Incorporated, PMB #111, 2880 Bicentennial, Ste 100, Henderson, Nevada, 89044-4484

Back