Friday, October 9, 2009

With FDIC is your money safe? Not Necessarily....



If your bank is on this list I would change banks or put my money in the mattress.

More detail and information is available from Calculated Risk, as well as the entire problem bank list.

These banks (note smaller banks people have assumed were safe) have NOT even been paying their FDIC Insurance again change bank or mattress..

Now why do I say not necessarily given the so called government backing? I suppose eventually you would get your money back but the possibility exists not when you may need to actually use it!

From American Banking News...

Now that the FDIC has effectively admitted they’ve run out of money in the Deposit Insurance Fund, what does that mean to for the banking system in the U.S., and the consumers and businesses using them?


The FDIC is Out of Money – Now What?


Well here is something they never seem to tell you I posted this story a while back and I think it is worth showing you the highlights....

How Safe Is My FDIC-Insured Bank Account? Here is your answer.





We always hear it can never happen again your money is safe it has the full faith and backing of the U.S. Government. These days even if that were entirely true our government is really bankrupt we have a HUGE deficit. So for those who would like to know how safe is their money?

Your bank account may not be as safe as you think (or hope). Taking a deeper look at the legal details and the financial depth of the FDIC reveals several troubling details that call into question how the FDIC would fare during a true banking crisis.
The US is coming out of a period of unusually low banking stress and failures. Since it is typical human behavior to let one’s guard down during tranquil periods, we might legitimately ask if this has happened with respect to the FDIC.
I thought the FDIC has full faith and credit backing by the US treasury?

Actually, no, it does not. The language in Section 14 of the FDIC Act is clear and unambiguous (emphasis mine): (a) BORROWING FROM TREASURY.-- The Corporation is authorized to borrow from the Treasury, and the Secretary of the Treasury is authorized and directed to loan to the Corporation on such terms as may be fixed by the Corporation and the Secretary, such funds as in the judgment of the Board of Directors of the Corporation are from time to time required for insurance purposes, not exceeding in the aggregate $30,000,000,000 outstanding at any one time, subject to the approval of the Secretary of the Treasury: Provided, That the rate of interest to be charged in connection with any loan made pursuant to this subsection shall not be less than an amount determined by the Secretary of the Treasury, taking into consideration current market yields on outstanding marketable obligations of the United States of comparable maturities.

Now that’s pretty interesting. First, that any additional money from the federal government is not a guarantee, but rather a loan, which will only be made subject to the approval of the Secretary of the Treasury. Further, that the loan is to be made at “current market yields." What do you suppose would happen to US Treasury yields during a true emergency? I can imagine a few scenarios where they might skyrocket, and this would serve to compound the difficulty of keeping the FDIC fund solvent.

How long does the FDIC have to repay me if things go bad?

Here things get murky. We turn to Section 11 of the act and find this (emphasis mine):(f) PAYMENT OF INSURED DEPOSITS.-- (1) IN GENERAL.--In case of the liquidation of, or other closing or winding up of the affairs of, any insured depository institution, payment of the insured deposits in such institution shall be made by the Corporation as soon as possible, subject to the provisions of subsection (g), either by cash or by making available to each depositor a transferred deposit in a new insured depository institution in the same community or in another insured depository institution in an amount equal to the insured deposit of such depositor.
That only says “as soon as possible” and sets absolutely no time limit or maximum. Taken to the extreme, it might be impossible for the FDIC to ever make depositors whole again, and this is one of dozens of such “outs” that exist in the document. Remember, this act was written in 1933 when money was gold, times were uncertain, and government lawyers were exceedingly careful to avoid locking the government into any possible financial black holes.

And the FDIC Act is very clear to spell out that the only insurance funds available to depositors are those that exist within the fund itself:(f)(1)(A) all payments made pursuant to this section on account of a closed Bank Insurance Fund member shall be made only from the Bank Insurance Fund

So, if the fund runs dry, there isn’t another possible source of funds that can be legally tapped without changing this wording. And that would take – wait for it – an act of Congress.

Surely Congress would appropriate the necessary funds to keep the FDIC solvent?

Here your guess is as good as mine. I would personally expect the US Congress to do everything in its power to the keep the FDIC well funded, especially during an emergency. I would not fault their desire here. But I can also think of a few scenarios or circumstances under which their ability could be taken away. For example:
  1. If the banking crisis came at the same time as an interest rate spike and general funding emergency
  2. If we were at war with Iran and things were not going well
  3. If China suddenly started dumping their Treasury holdings in the opening gambit of an economic war
These would all be times under which I could easily imagine either a lethargic or inadequate response from Congress on the matter.
You can read the original in full here...

No comments: