Dedicated to Deposits: Deals, Data, and Discussion

News and Resources on Bank Failures and the FDIC


There continues to be concern that we're going to see some large bank failures. Reuters reports on a former IMF chief economist who stated his belief at a recent financial conference:
We're not just going to see mid-sized banks go under in the next few months, we're going to see a whopper, we're going to see a big one, one of the big investment banks or big banks.

Reports on the FDIC indicate they're taking steps to reduce the risk of bank failures and to make sure it can cover potential costs. This WSJ Tuesday article describes how the FDIC is pressing bank regulators to more forcefully downgrade the confidential rating of troubled financial institutions. It could give the FDIC more muscle to either force the companies to improve their balance sheets or seek a sale. The intent is to solve the issues early when the cleanup would be less expensive.

This WSJ article from today describes the issue of the FDIC Deposit Insurance Fund and the steps the FDIC is considering to make sure this fund doesn't run out of money if and when more banks fail. The fund is paid by fees levied on banks, and there are plans to raise these fees. However, higher fees risk hurting the banks.

One interesting thing I learned in the article is that banks are charged different amounts:
Most banks now pay the FDIC five cents for every $100 of insured deposits. Higher-risk banks are paying as much as 43 cents to insure $100 in deposits.

That seems fair and should encourage higher-risk banks to make more responsible decisisions.

The worst thing that could reasonably happen is that the fund would dry up after several high profile bank closures and the government would use taxpayer dollars to restore the fund.

Mass bank failures along with a bankrupted deposit insurance fund would definitely hurt the public's confidence in the banking system. Another step that the FDIC is doing to prevent this from happening is more PR to educate the public about the safety of the FDIC protection.

More FDIC Educational Resources

The FDIC just came out with this consumer news: Get a Good Night's Sleep: Rest Assured, Your Money is Safe in an FDIC-Insured Account. There are three articles covering the common questions and concerns about the FDIC.

This FDIC article does a good job at describing what happens when a bank fails. So far this year, we've seen two different scenarios. For the smaller banks that have failed, the FDIC arranged for healthy banks to assume the insured deposits of the failed banks. For IndyMac which was one of the largest banks which have failed, the FDIC transfered the insured deposits to a newly created bank that it now runs. The last scenario that we haven't recently seen is when the FDIC just issues a check directly to depositors.

The article also describes issues that may cause the FDIC to take longer in transfering or paying insured deposits. A good example that we saw with IndyMac are trust accounts that have over $100K. This is one of the downsides of having over $100K in insured deposits. I have more details and real life examples of this issue in my post on Extending FDIC coverage past $100K.

Thanks to the readers who sent me info on these news articles. If you find interesting banking related news articles, feel free to email me links to them or leave a comment in my finding deals post.


Related Posts

Comments
16 Comments.
Comment #1 by Anonymous posted on
Anonymous
So who is the big bank going BUST going to be?

I think it's WAMU.

There stock is a good indicator at this point.

Thoughts?

1
Comment #2 by Anonymous posted on
Anonymous
A ton of the big banks are doing bad financially.

Investment banks, regular banks and the like. Its to be expected. It is not worth discussing further since the players are already known.

1
Comment #3 by Anonymous posted on
Anonymous
I had an account over 100K at IndyMac.
I closed the account the day FDIC took over, but as of today, I have not received a penny of my money.

FDIC is giving me a run around, claiming that some taxes have not been paid with the person included in the POD account.

FDIC wants me to contact IRS and clear the tax issue first with the SS# used in the POD.

IRS said it may take 3-6 months to clear the issue after the taxes are deducted from the POD amount.

NO MORE PODs or TRUST ACCOUNTS FOR ME EVER.

Let this be a warning to all who think that PODs are save for over $100K.

1
Comment #4 by Anonymous posted on
Anonymous
You may have made things harder by closing the account.

1
Comment #5 by Anonymous posted on
Anonymous
I think the FDIC should save its money instead of spending it on advertising.

1
Comment #6 by Bozo (anonymous) posted on
Bozo
Ultimately, the FDIC can just do what they do in Zimbabwe, print money. Your deposits are fully insured by the full faith and credit of the printing press.

Yours,

Bozo

PS: The irony is the Zimbabwean government got cut off by its German printing company because it couldn't pay its bills in gold or euros.

1
Comment #7 by Anonymous posted on
Anonymous
I had similar situation with FDIC.

My mother in law was with me on a POD. She died before I had a chance to withdraw the money. The local Bank was closed by FDIC.

Its been some time since then, no check from FDIC yet. They are waiting for the desist estate to be cleared with IRS first.

PODs or trusts are traps and they create new liabilities should something goes wrong with the Bank or the person in the POD account.

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Comment #8 by Anonymous posted on
Anonymous
Could you please clarify what you mean by your mother-in-law was "with you" on a POD account?

Do you mean she was the beneficiary of the account? Was she a co-owner? Was she the owner and you were the beneficiary?

Same question to the poster at 1:59 p.m.: What do you mean the person was "included" in your account? Were they a joint owner? Were they a beneficiary? Something else?

1
Comment #9 by Anonymous posted on
Anonymous
Thanks Banking Guy. Just opened up at my local KeyBank a 23 mo. CD at 5.0% apy and a 48 mo. at 5.50% apy (under FDIC limits). Pretty darn good rates!

Plus, you get a free Apple IPOD Touch if you open up a checking account(I did w/Key Rewards), and use your debit card once and have two automated payments(will have my monthly medical insurance premiuns deducted) of $100 or more by. Fairly easy for me...

1
Comment #10 by Anonymous posted on
Anonymous
I can't read the WSJ article because I don't subscribe.

Does it say if the 5 cents/$100 fee is per month or per year or per ????
Thanks.

1
Comment #11 by gaelicwench (anonymous) posted on
gaelicwench
This is why I "spread" my money around, rather than have it all at just one or perhaps two banks. That's like not bothering to diversifying one's stocks. It's asking for a whole passel of problems. As for a POD, my other half is on all my accounts as beneficiary.

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Comment #12 by Anonymous posted on
Anonymous
To the poster of 7:49 PM, August 21, 2008.

I was beneficiary according to the Bank papers, but it was my money used when the account was opened. My mother in law was the owner as per POD set up.
FDIC and IRS are giving me run around excuses, just not to pay me back the money.
The estate may not settle for another 6-12 months.

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Comment #13 by Anonymous posted on
Anonymous
In General when the owner of a POD account dies, the beneficiary is not automatically mailed a check, because of tax issues. Even if your money are used for the account, they technically belong to the owner.
You better get an attorney to clear the mess.
PODs can be a big trap if a Bank fails or the owner has tax issues or there is no valid will or the estate has not been settled with IRS first.
Good luck....

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Comment #14 by Anonymous posted on
Anonymous
My understanding re. FDIC is, when a jont owner dies (and you are also a joint owner), you have a 6 month grace period to either get sosme $ out or add another joint owner. When a POD beneficiary dies, you have NO grace period, i.e. FDIC insurance is immediately reduced. BankingGuy, can you confirm? Thanks.

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Comment #15 by Banking Guy (anonymous) posted on
Banking Guy
Yes, that is correct. You immediately lose the extra coverage when your POD dies. I have more info on this under "Downsides of Using PODs for Added Coverage" in my post Extending FDIC coverage past $100K.

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Comment #16 by Anonymous posted on
Anonymous
The post on the FDIC insurance and POD accounts is confusing. How can the FDIC not pay due to taxes?? I have several POD accounts at banks and taxes on ALL types of accounts are paid after I receive yearly 1099 INTs and do taxes for that particular year. So how can "taxes" be an issue here?? Would appreciate some explanation of this issue. Thanks!

1