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New Program Announced to Stabilize Banks - More Changes to FDIC Coverage


The Feds just announced a new program to restore stability and confidence in the US banking system. In addition to injecting capital into banks and making new loan guarantees, the FDIC will expand the deposit insurance coverage over the new $250K limits. However, it only covers non-interest accounts. Here's an excerpt from the FDIC press release:
any participating depository institution will be able to provide full deposit insurance coverage for non-interest bearing deposit transaction accounts, regardless of dollar amount. These are mainly payment-processing accounts, such as payroll accounts used by businesses. Frequently, these exceed the current maximum limit of $250,000. This new, temporary guarantee - which expires at the end of 2009 - will help stabilize these accounts.

Unlike the new $250K limit, this change won't help most of us who keep their money in accounts thay pay interest.

For details on the previous FDIC coverage changes, please refer to this post.

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Anonymous   |     |   Comment #1
Thanks Banking Guy. Just one more example of Bush assisting his big city banking buddies, and other big guys as well, at the expense of us common people. I guess he figures the benefits will "trickle down". Bush makes me sick.
Anonymous   |     |   Comment #2
The poster of 6:30 makes me sick. **** **** **** is all you know how to do. Cash in your Jumbo CD'S and put the money in a non-interest account and you can take advantage of this new coverage. You got the limit increased to 250000 and you are still not happy. Maybe you should define commom people. Since they pay no interest what is to " trickle " . Seems to me if it helps the working guy get his check on Friday it is a good thing. Will close now as I know you want to get to your bank as soon as possible so you can convert your CD"S in order to take advantage of this new hand out.
Anonymous   |     |   Comment #3
I have not seen the text of the regulations, but until clarified in the regulations DO NOT ASSUME that "deposit transaction accounts" includes any consumer checking accounts.

Most medium to large banks employ a bookkeeping trick known as "deposit reclassification." This allows them to split your checking account into two subaccounts and keep most of your checking account money in a savings (non-transaction) account on their books. This goes on completely behind the scenes and you are not told anything about this. You may believe you just opened a checking account at a bank and your statements may reflect only one account, but your bank has in reality opened two accounts for you (completely unknown to you) is transfering most of your money into the savings account. They do this in order to circumvent the reserve requirements on demand deposit accounts.

Google for "deposit reclassification" to learn more.
Anonymous   |     |   Comment #4
I must admit, that while I understand the need for business accounts to have higher insurance for day to day funds to pay bills etc.....despite the recent increase in FDIC interest bearing deposit insurance to 250K (which was far overdue before the recent trouble...it had not at all kept up with monetary changes since (I recall) sometime in the 1980s.

But, more importantly, the average small investor/retiree whi may keep substantial funds invested in CDs etc; is only slightly better off...than before. Perhaps it IS a GOAL of the government (or not), but such persons are effectively "blocked" from investing in CDs with a term over 12 months, as the 250K limit is schedule to expire 12/31/09!

Further, the EIDE calculator does NOT even flash up this warning based on your deposit/category levels. You have to click yet another button which is not really labeled as to it's extreme warning! Of course, it's possible that the 250K limit will be extended by Congress but I for one will not choose to guess about this... Truly, there is no reason why this 250K limit was not made permanent...!!!!!
Anonymous   |     |   Comment #5
All of FDIC insurance increases are temporary because FDIC has no authorities from Congress to make it permanent.
It cost taxpayers and the banks money to insure above the current limits of $100K.

Treasury department must put 1% in reserves from every insured dollar. There are $7 trillions in bank deposits at the moment. You make the math of the cost to taxpayer insuring the money of foreigners pouring money in our bank system.

If banks have to pay higher insurance on deposits they will cut on the interest rate paid to savers.

All of this about FDIC insurance is just a smoke screen to bring stability to banking system and is not affecting many of the savers.

To the poster of 6:30 AM, October 14, 2008 Bush has nothing to do with any of this. Congress Paulson and Bernanke are the masterminds of it. You must be Obama supporter.
Anonymous   |     |   Comment #6

Who, exactly, appointed Paulson and Bernanke to their posts (with the advice and consent of the Senate)?

And who can fire Paulson at his own discretion if he is displeased with Paulson's actions?
Anonymous   |     |   Comment #7
8:11 I loved your post accusing me of being an Obama supporter. I shrieked with laughter, and believe me I needed a good laugh! Thanks!

As between Obama and McCain there is precious little to choose when one is a Conservative like me. I voted twice for Bush, proving in the process only my gullibility. He's as bad as, or worse than, Obama and McCain. Sorry to disappoint, but people like me have no candidate this year. They are both far too liberal for me. Also, for anyone who cares and FWIW, Paulson is a democrat. No great shocker there, of course. RINOs like Bush and McCain just love those democrats. They recognize their own kind, I think through use of their olfactory facilities.
Anonymous   |     |   Comment #8
Yes sir,

Lower interest rates paid on bank savings accounts & CDs and limit the FDIC coverage. Force retirees to pull their money out and put it in the stock market thinking they would get a better return on the hard earned money and live a more comfortable life.

Then the Wall Street bankers can pull the old "Pump and Dump" scam on them again and again until they have it all! Of course they would have to split it with the politicians in Washington that made it all possible.
Anonymous   |     |   Comment #9
To "trk my opinion), I posted above @ 7:40AM...a few further comments. To the poster mentioneding voting for Bush 2x (2000+04)..well I'd say at least he is honest stating he was gullible! I might go a little further but I accept his statement and hope he doesn't remain "so" in 2008!

I do realize that the 250K time limit (12/09) is by Congressional action, not FDIC mandate. Still, we should all consider this compared to the (as I know) virtually unlimited Wall Street brokerage Money Market funds...which were never Gov'T insured before!! - no no limit. Remember, losses (say MM par value become less than $1.00/share are actually allowed to be taken as Capital Losses on your taxes since they are considered "at risk"! Does anyone have any info as to "lost funds" (uninsured) at a failed FDIC institution???? If so I'd like to know the references! Of course, in such a case, the "uninsured funds" surely were "at loss"...otherwise you would not have lost them.

Finally, the comment (12/2009 limit on increased FDIC coverage...the last poster ( 9:48AM) also got it just right...There appears to be a built-in bias towards pushing investors back into wall street funds/stocks/bonds.

I predict...that within 7-10 years...we will all see the next bubble or huge scandal..again. (be in an Enron type deal, or tech bubble, or phoney baloney situation we have today.

WHY??? Simple, for the most part, the CEO's etc are taken in front on Congress and despite their huge salaries...suddenly "dumb-up" ...they have great recall about details of their contracts, deals etc. But, ask them about data relevant to the main topic...and they are sudden;y (sorry) DUMB AS SH_T!

I say, if we want to end the cyclical party at our expense, throw the bums in jail for 10 years...inside the "regular population"...not some hotel for bums...
Anonymous   |     |   Comment #10
To Anonymous, at 11:51 AM, October 14, 2008.

It is up to us (people) to clean the house in November and not allow bad congressmen or senators in again.

Once elected, it is to late to clean the dirt after them.

We should screen all candidates carefully and not allow people from ACORN to destroy our democracy.
Anonymous   |     |   Comment #11
To poster at 8:47 AM, October 14.

I'm independent voter, but I will vote for McCain, because he is less dangerous then the alternative.

Not voting is automatically endorsement for both. Second, there is much at stake in Congress for not getting involved on that level. Therefore, voting is essential to our democracy. We can complain as much as we want, but we have to be vigilant at what is going on at every step and level of candidates.
Complaining after the fact is not going to help us at all.
Anonymous   |     |   Comment #12
wait a sec, I'm confused...

so the 250k limit is only for non-interest bearing accounts, does that mean NO interest bearing accounts are eligible for any FDIC coverage at all?

so even a savings account with .5% apy with $10k in it is not covered if the bank fails?
Anonymous   |     |   Comment #13
$250K limit is for all accounts, but there is NO LIMIT for accounts that pay no interest! Please correct me if I am wrong. Thank you
Anonymous   |     |   Comment #14
The $250k limit was part of the bailout bill. It applies to all accounts at FDIC and NCUA insured banks. It is scheduled to expire 12/31/09.

The unlimited insurance applies to "non-interest bearing deposit transaction accounts" at FDIC banks. It also is scheduled to expire at the end of 2009.

Important: the unlimited insurance does not apply to all non-interest bearing accounts. Do not assume that it applies to your account just because it bears no interest. A "deposit transaction account" is a technical term in banking regulations. It is NOT the same as a checking account. It is very unlikely that a consumer at a large bank has a pure "transaction account" even if it allows unlimited withdrawals or pays no interest.
Anonymous   |     |   Comment #15
To the poster above who complained of being locked out of larger amount CDs with terms of more than one-year...because the new $250K FDIC insurance coverage is only slated to last thru the end of 2009...

No..you're not "locked out" of anything. You're free to take whatever amount of money you have and invest it in multi-year CDs with the best rates you can find...

Just make sure you do one of two things.... Either:
A) stay under the $100,000 amount for any single person account at any one bank (since the FDIC amount clearly will not revert back to any lesser amount, if it reverts at all in the future...) or
B) use the current approaches regarding multi beneficiaries and POD accounts (payable on death) to legally extend your FDIC coverage well beyond the $100,000 amount per account/per bank. The actual maximum coverage amount depends on your circumstances...

Banking Guy has posted much info here on how people can legally use those provisions to extend their FDIC coverage...You just have to be careful to create those CDs with the proper language to make sure you meet the FDIC's criteria.
Anonymous   |     |   Comment #16

Read this:
"Sheila C. Bair, chairman of the FDIC, said the agency considered guaranteeing all bank deposits but decided that any potential benefit was outweighed by the risk that a guarantee on interest-bearing accounts would attract a huge inflow of deposits currently held in money-market mutual funds.

"We're trying not to stabilize one part" of the financial system "and destabilize another part," she said.

Separately, the FDIC is creating an insurance program to encourage investment in banks by guaranteeing that investors won't lose money. Participating banks will pay the FDIC a fee of 75 cents on each $100 in debt that they sell to investors. The FDIC will guarantee through June 2012 the debt issued by participating banks before the end of June 2009. If the bank goes bankrupt, or defaults on its debt, the FDIC will pay the investors.

To prevent banks from running up massive debts on the government's tab, the program limits banks to a 25 percent increase from their current level of borrowing. The FDIC estimates that the maximum amount of debt that banks could issue under the program is about $1.4 trillion.

Bair also said that the FDIC may refuse to guarantee debt issued by banks with financial problems, though she declined to discuss specific criteria.

Bair acknowledged that the new guarantees shelter banks from the immediate consequences of misbehavior because depositors and investors have no incentive to remove their money from an institution if they know that the government stands behind it."

Anonymous   |     |   Comment #17
* Sorry folks...yesterday, when I stated "Locked out" I should have said...if I desire to invest more than 100K( per FDIC category) I'd better be sure all such funds are out of "harms way" by 12/31/09.

Let me state it as an example...I'd like to invest 250K in a 18 month, 4.5% CD at Capital One -direct bank. But, if I do so, after 12/31/09 I'll have UNINSURED FUNDS= $150K! Yes yes, I know all the methods of Joint, POD etc. I also know, from experiencing 4 (yes FOUR) bank failures and having to go htrough the FDIC "hoop" since Sep 2007 that depositors had BETTEr really understand the POD rules...or well you'll be sucking eggs for dinner!

If you really read the actual FDIC regs, you'll find statements like "titling as refelected in the RECORDS of the bank". Ok, so, in case of a dispute with the FDIC...and they say "No Sir, it's not properly titled"...well, what RECORDS can you produce to CONVINCE the FDIC that YOU are correct? Sometimes the FDIC inspector accepts a Signature card (which many brick&mortar banks don't /won't give you a copy of.! Next inspector will NOT accept a Sig card. No inspector will accept a statement that shows POD in the mailing address. And, to make matters worse, the records of the bank, created when you opened the account **** well better have the name and hopefully the Social Sec number of any ITF/POD/LT persons.

Now...here comes the real killer...if your CD copy or record or whatever you have simply lists beneficiaries but noes not say: ITF (in Trust For), Totten Trust, POD (Payable on death, LT (Living Trust..and here the bank MUST have a copy of your family trust supplied by you...well, in such cases the FDIC usually will determine that such beneficiaries were simply informing the bank as to whom to pay the funds upon your death....as opposed to having the account show revocable trust titling. BANKGUY has done a very good job over the past few months expalining such issues...MY purpose here is hopefully SAVE some people from finding all this out after the $$$ is determined NOT to be insured.
Anonymous   |     |   Comment #18
Are U kiddin me, WTF is up with this stuff, all I hear is how they want "more savers", well hell we savers also want some interest on those savings to live on. I just assumed the 250K FDIC increase was just that a "increase" for any type of savings, CD or what ever.

I lost 2 6% CD's at Wachovia due to all this crap and moved them to other banks before this increase was in effect, but as one stated, I still would be under insured after dec 09 cause they still had 2 years to go. btw: I had a great financial guy at my branch that changed the closing date for me and saved me 7K.

So yeah this temp crap sucks and may get some old folks hooked up in some longer term CD's without knowing what they did when dec 09 rolls around as most banks have some sort of problem.

I figured since Wells Fargo now owns Wachovia the threat of failure would pretty much have gone and it would be good to have one bank and one 1099 to deal with. But I can't take the chance with my life savings at this stage with a temporary FDIC increase. So I will keep my CD's in separate banks, under 100K and POD'd.