Dedicated to Deposits: Deals, Data, and Discussion

Uninsured IndyMac Depositors Ask FDIC Chairman for Help - Lessons To Be Learned


Yesterday was another busy day for the FDIC with the closures of 9 banks including California National Bank and Park National Bank in Chicago. All nine banks were subsidiaries of the FBOP Corporation (see post). Like most of this year's 115 bank closures, another bank (U.S. Bank) assumed all deposits, even deposits above the FDIC limit. Last year's IndyMac depositors weren't so lucky. Those who had over the FDIC limit before IndyMac failed have only received half of their uninsured deposits, and it looks unlikely they'll get back any additional amount. As reported by this LA Times blog article, the FDIC Chairman Sheila Bair responded to IndyMac depositor's questions during a town hall meeting in Los Angeles this week. She couldn't offer help, but she provided some sympathy:
"I know you feel it wasn't fair," she told the depositors, a group of whom attended the session. The situation "troubles me greatly," Bair said, but added, "It's something that Congress has to fix."

One of the main issues from depositors were from those who claimed they were misinformed by IndyMac employees regarding beneficiary accounts.

The uninsured depositors of IndyMac have set up the website IndyMac Depositors to organize their efforts to reclaim their lost money. There are a few stories of depositors who have claimed to have been misled. One is from June:
An Indymac Bank representative told me that my savings were safe, I believed him and ended up loosing part of my hard earned life savings.

This letter on the website blog described how an unqualified beneficiary caused some money to be uninsured:
I had two CD's with the bank and I was assured that my accounts were properly insured by representatives at Indymac. Per the advice of Indymac Bank one account was held as an individual insured by the FDIC for 100k and the other account was held as a trust account with two beneficiaries (ITF's) and insured by the FDIC for 200k. I have been informed by the FDIC that one of my beneficiaries on my account is not "qualified" and I have uninsured losses that exceeds $105,000.00.

This comment on the website blog described two valid issues with FDIC insurance:
1. In general the insurance is only tentative: it is not confirmed to be good coverage until after the bank fails.

2. Even if your FDIC coverage is good when you make the deposit, the insurance can be lost (that is reduced significantly) by events occurring after the coverage starts.

IndyMac's failure was before the basic FDIC coverage was temporarily increased from $100K to $250K. In addition, it was before the FDIC permanently changed the beneficiary requirements related to POD accounts which can extend FDIC insurance. So losses seen at IndyMac should be less common now. Nevertheless, an important lesson is to not rely on the bank representative's assurances when you exceed the basic FDIC insurance limit.

WaMu's Failure

No WaMu depositors lost money when WaMu was seized last year and JPMorgan Chase took over. IndyMac's closure and the loss of uninsured deposits probably increased the nervousness of WaMu depositors. This Puget Sound Business Journal article goes behind the scenes of WaMu's closure. It's interesting to read about the bank runs that occurred at WaMu and what WaMu did to try to prevent and deal with them.

References:

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Comments
7 comments.
Comment #1 by Anonymous posted on
Anonymous
If you are setting any other account type but individual, get everything else in writing. So, if something goes wrong, you know who to go after.
Don't assume anything from a CSR, even a joint account can be problematic if one or the other party dies or get divorced or separated or there is a tax issue or get mentally uncapable to deal with the money. If a bank fails, you are subject to FDIC rules and regulations even the IRS gets involved.

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Comment #2 by Anonymous posted on
Anonymous
Why would you take the word of some bank clerk about something that important. Banks give you an FDIC booklet that explains the insurance.

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Comment #3 by Anonymous posted on
Anonymous
It will do you absolutely no good to get everything else in writing.

Let's say some front-line CSR (who probably was working at McDonalds a year ago) gives you a written statement that your account was insured to $500,000 and the bank fails and it turns out that it was only insured up to $250,000. Whatever you got from a bank employee is in no way binding on the FDIC. (It probably wouldn't even be binding if you got it from an FDIC employee.) Are you going to sue the bank? The bank is gone and has no money left and the FDIC has a higher claim on any of its remaining assets. Are you going to sue the CSR? The CSR was working for little more than minimum wage and is out of a job now, what are you going to collect from him/her?

There used to be a time when being a banker was a skilled profession. The banker you talked to would know about the bank's products, procedures, and regulations and be trained in banking law, regulations, and customs. No more. The only kind of people that the big banks will let you talk to now are trained strictly in sales and typing stuff into the computer. They are judged on their ability to talk you into opening up a profitable account and taking out some loan products. Anything else, they can just type into the computer and read to you what the computer says. The typical customer probably knows more about the bank's products and services (or can learn more by reading their web site or brochure).

Even worse, they don't particularly care to learn. Their management expects them to meet sales quotas and they know that they will probably be in the job for less than a year. And if they were smart enough to learn about banking, they probably would have gone on to college instead of taking that McDonalds job right out of high school.

This isn't just a problem with banks anymore. Customer Service has gone downhill in virtually all consumer industries. I marvel at how often I end up explaining to CSRs how their employers' products or services work and they look totally amazed.

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Comment #4 by Anonymous posted on
Anonymous
"And if they were smart enough to learn about banking, they probably would have gone on to college instead of taking that McDonalds job right out of high school."

Or take that McDonalds job right out of collage

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Comment #5 by Bob (anonymous) posted on
Bob
During the IndyMac failure I learned from the FDIC that a joint account must have signed signature cards signed by both owners if the internet bank requires signiture cards. If only one party signs a card then the insurances is only good for one person.

I recently had to sort this issue out with Ally after they changed their name from GMAC.

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Comment #6 by Anonymous posted on
Anonymous
Bob,
Can you explain some more what exactly the issue was with Ally/GMAC? Maybe someone else has the same issue and doesn't realize it. I would much appreciate it.

I haven't opened an account since GMAC became Ally. Back in the GMAC days, they would send a signature card to be signed after each new account was opened. Was there something defective about those signature cards? Is there something new with Ally?

Thanks in advance.

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Comment #7 by Anonymous posted on
Anonymous
"I marvel at how often I end up explaining to CSRs how their employers' products or services work and they look totally amazed."

Me too.

It is not excuse, but the bank or CU has dozens of products -- and you are only using a couple of them.

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