Dedicated to Deposits: Deals, Data, and Discussion

A Bank Customer's $321K Loss from a Bank Failure

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This is a good example of the importance of keeping your deposits under the FDIC insured limits. This Pittsburgh Post-Gazette article described the loss of over $321K from a 77 year-old customer of Metropolitan Savings Bank. This bank was shut down by state regulators in February due to unsafe and unsound operations. I posted about this in February.

The article mentioned that the man had a total of $521K of his lifetime savings in the bank. $200K was insured. The extra $100K of coverage was due to his son also being an account holder. According to the FDIC spokesman quoted in the article, some money "possibly" could be returned later this year, but he doesn't "want to get people's hopes up."

It looks like this man could have had all of his money insured if he had structured the accounts properly through joint accounts and trust accounts. As the article mentions, all of the responsibility of structuring the accounts properly falls on the depositor and "Bankers are known to get it wrong."

One thing that should be noted is that bank failures are rare. This FDIC list of bank failures shows only 26 since October 1, 2000.

For more info on the FDIC and NCUA insurance coverage, please see my Facts about FDIC and NCUA.


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Comments
11 Comments.
Comment #1 by scott (anonymous) posted on
scott
Thanks, That is an eye opener. I stay insured at all my banks except BoA. I have a 7 Figure balance with them and like to think we will never see them fail. With all the credit problems we are seeing has me wondering if this is safe? But I figure if it got so bad that BoA failed that many others would also and FED could probably not handle that many failures

1
Comment #2 by Banking Guy (anonymous) posted on
Banking Guy
Yes, the US would have to be in a pretty bad shape if a bank like BoA would go under. I think it has around 10% of the US bank deposits.

1
Comment #3 by Anonymous posted on
Anonymous
Thanks again banking guy. Do you know of a list of credit unions that have failed in recent times?

1
Comment #4 by Saagar (anonymous) posted on
Saagar
Hey,

I have a quick question. Since this is a forum of bank and credit experts, I guess this is the right place to ask.. If that guy had saved that $521k in 6 individual accounts in 6 different banks, that are solely listed in his name and if all these 6 banks were FDIC insured, then would that guy get back all of his money from FDIC. Is the FDIC insurance of $100k for an account or for an individual person? Please let me know. Thanks...

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Comment #5 by Anonymous posted on
Anonymous
@saagar - Limit is per bank, so if he had $100k at each of six different banks he would have been fine.

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Comment #6 by Anonymous posted on
Anonymous
It's an account limit (why #1 is insured in all banks except BoA).

While I feel sorry for the guy who lost his savings I have trouble understanding why he entrusted his money to the bank in question (look at the picture), why he didn't read the disclosures, etc.

BoA won't fail because the Fed would bail it out to keep confidence in the banking/financial system. That's also why they bailed out the long term hedge fund in the 90s (arranged a bailout really without financing it).

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Comment #7 by Anonymous posted on
Anonymous
I would recommend looking at CDARS. This deposit tool allows select banks to offer FDIC insurance up to 25 million for an individual depositor.

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Comment #8 by Cyclone (anonymous) posted on
Cyclone
Yup, Citibank, Chase, BoA, and Wachovia have all reached the "too-big-to-fail" size. The gov would do whatever necessary to bail out any of these 4 banks b/c their collapse would be extremely detrimental to the economy/banking system. It also does not hurt that these four account for a vast percentage of government banking. I know in FL that much of the government agencies (state and more local) using Wachovia and BoA.

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Comment #9 by Anonymous posted on
Anonymous
I think you guys are being too wishful in thinking that the big banks won't fail. What FDIC would do is give you 100k of the money you had in your account. If you had 500k at Chase or Citibank and that bank failed you'd get your 100k and that's about it.

Don't forget that Enron, Worldcomm and others were too big to fail too. Ask the investors who lost billions where their money is now and you'll see the light.

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Comment #10 by Anonymous posted on
Anonymous
FDIC insurance limits depend on account "titles." For those seeking more info, http://www.fdic.gov/deposit/deposits/insured/yid.pdf. Here's a quote: "Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $100,000 at one insured bank and still be fully insured." The brochure describes the eight ownership categories recognized by FDIC regs.

Single and joint accounts are two examples of ownership categories. Simply stated, if Mr. & Mrs. John Doe held titles to separate accounts in their individual names and one jointly, they could be covered for up to $300K, per insured bank.

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Comment #11 by mh (anonymous) posted on
mh
That's incorrect. If Mr. and Mrs. John doe held a joint account and two individual accounts at a FDIC insured bank, they would be covered up to $400K at that bank. (100K for each of the two individual accounts plus 200K for the joint account.)

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