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Coronavirus Stimulus Package Includes Limited FDIC Coverage Expansion

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The Coronavirus Aid, Relief, and Economic Security (CARES) Act that unanimously passed the Senate has a few little-known provisions that will likely be of interest to savers. The well-known provisions have been discussed at length by the media. These include the $1,200 tax rebates to most individuals, expanded unemployment benefits, billions of dollars for state and local governments and hospitals, and billions of dollars in loans for small and large businesses. The total cost of this package is close to $2 trillion. The bill is expected to pass the House on Friday and be signed by President Trump soon after House passage.

One small and little-known provision of the CARES Act covers federal deposit insurance. In summary, it temporarily provides unlimited coverage to noninterest-bearing transaction accounts. This applies to both the banks and credit unions. The extended coverage will end no later than December 31, 2020. Below is the summary of this provision as described in this section-by-section summary document provided by the Senate Banking committee:

Section 4008. Debt Guarantee Authority.

Authorizes the Federal Deposit Insurance Corporation (FDIC) to temporarily establish a debt guarantee program to guarantee debt of solvent insured depositories and depository institution holding companies. Noninterest-bearing transaction accounts may be treated as a debt guarantee program. The National Credit Union Administration (NCUA) is given authority to temporarily increase share insurance coverage for noninterest-bearing transaction accounts. Such authorities, programs, guarantees, and increases shall terminate no later than December 31, 2020.

The actual wording of Section 4008 that was passed by the Senate is available in this full text of the bill.

This provision appears to resurrect a provision of the Dodd-Frank Act that gave the FDIC and NCUA authority to provide temporary unlimited coverage for noninterest-bearing transaction accounts after the 2008 financial crisis. The FDIC issued a press release in 2010 that described the type of accounts that would receive unlimited coverage that would last through 2012:

Noninterest-bearing accounts, as defined in the Dodd-Frank Act, include only traditional, noninterest-bearing demand deposit (or checking) accounts that allow for an unlimited number of transfers and withdrawals at any time, whether held by a business, individual or other type of depositor.

There does not appear to be any provision in the CARES Act which increases the standard insurance amount of $250,000. Before the 2008 financial crisis, the standard insurance amount was only $100,000. This changed by legislation that Congress and the President passed during and after the 2008 financial crisis. At first the change was temporary. Later, the Dodd-Frank Act made it permanent.

Once the CARES Act is signed by the President, the FDIC and NCUA will likely issue press releases which will describe the implementation details.

This insurance coverage provision of the current bill has the same purpose as the provision that was included in the Dodd-Frank Act. It’s intended to calm depositors and bond holders. It might be most helpful in easing the concerns of businesses who often have millions of dollars in transaction accounts that are used to pay for expenses like payroll.

For most of us who keep our large deposits earning as much interest as possible, this provision won't directly help us any. Indirectly, it’s possible that it may be yet another factor that puts downward pressure on deposit rates. Businesses will be less likely to move their deposits out of small banks and into the large banks that are often considered “too big to fail.” Thus, the small banks will have more deposits and will have fewer reasons to attract deposits with competitive deposit rates. This unlimited coverage may also result in businesses and high-net-worth individuals moving their cash from money market funds into banks where they can get this unlimited insurance coverage.

On the positive side, this unlimited coverage may help small banks compete with the large banks which profit from their “too big to fail” image. There has been a long-term trend of small banks being acquired by large banks. Bank consolidation reduces competition. So if more small banks are able to remain open and independent due to this unlimited coverage, that will be helpful to savers in the long run.

Provisions Affecting Retirement Plans

There are other provisions in the CARES Act that affect retirement plans. I will have more details on these provisions in a future post.

After the CARES Act is signed by the President, I expect the FDIC, NCUA and IRS to issue press releases to describe implementation details. We should take the information they release as the official rules of how the CARES Act will change things. I plan to publish new posts when that information becomes available.

FDIC Continues to Reassure Depositors

The FDIC has been active in the last couple of weeks in reassuring the public about the safety of bank deposits. I reviewed this issue in this post last Friday. Yesterday, the FDIC issued another press release on this topic with the following remarks by the FDIC Chairman Jelena McWilliams:

"I want to underscore that our banks are safe," said Chairman McWilliams. "Your FDIC-insured deposits are safe. […] The FDIC was born out of a crisis, and it has witnessed many crises. We will get through this one together. Since 1933, no depositor has lost a penny of insured deposits in an FDIC bank, and that will not change."

Below is a list of a few useful resources on the topic of bank failures and the safety of deposits.

FDIC and NCUA References:

DepositAccounts References:

Related Pages: bank health ratings
Comments
ichaelm
  |     |   Comment #1
As always, thanks for your consistently outstanding and invaluable information, Ken.
gregk
  |     |   Comment #6
Yes, but a little bit more reflection on the hyper-inflationary potential down he road of all this massive and unheard of Fed & Government stimulus and bailout money would be useful and appreciated (though Ken is on record here as not being too worried). In just the last week alone Fed QE has amounted to close to one trillion dollars(!), - and that only a beginning. This is all going to be free people apparently believe, or at least the effects very transient. I'm dubious, and expect lasting upheaval. We now have a Government run economy and monetary system for the forseeable future, and probably permanently should we avoid collapse.
Zemo999
  |     |   Comment #122
I said the same thing about printing money with no backing resulting in runaway inflation during the 2008 bailout. Yet, for all the $ printed, inflation never made an appearance. Given that we're in uncharted territory, I don't think one can assume with any certainty that inflation is the result of the current fed actions. How would you explain the complete lack of inflation following 2008 QE near-infinite?
Milty
  |     |   Comment #149
Regarding complete lack of inflation, one might want to look at housing (including property taxes, insurance, and utilities), education, and health care costs over the last decade. The dubious ways of calculating inflation appear to have clouded our understanding, except when applied to most wages.
Kaight
  |     |   Comment #124
No new money is being printed. The Treasury is borrowing Federal Reserve notes and it will be repaid! God bless Trump!!
Predatory Depositor
  |     |   Comment #19
Speaking for myself, I find it unnerving when the deposit insurance agencies reassure that you will receive every dollar covered by their insurance in the event of FI failure. I already know that. All they have to do is print the money and hand it to you.

That isn't my concern. my concern is that the money they give me will be worth less than the money I deposited because the more dollars they print the less each dollar is worth. So I might have the same amount of dollars, but they can only buy half as much. That effectively means I've lost half my money.

The fact that the insurers never mention that is not reassuring to me at all. As I said previously, I'd rather they not say anything than reassure me about a nonexistent risk and fail to mention the real risk.
gregk
  |     |   Comment #20
Then insured deposits should be covered for their nominal amounts plus the rate of inflation in the 12 months immediately preceding any payout. Call your Congress person.
Predatory Depositor
  |     |   Comment #21
Which is a better chance? A slim chance or a fat chance?
milty
  |     |   Comment #28
@#19: Don't worry, the Fed will ensure that inflation is not what it appears, and as long as you and everyone else immediately invest it in the stock market rather than silly things like housing, education, or health insurance you will be just fine.
jj66
  |     |   Comment #22
Non-interest bearing? So, if a checking or savings account earns 0.01%, it doesn't qualify?
CDmanFL
  |     |   Comment #86
Hello Friends,
I made well over the income limit in 2018 to get a stimulus check. But I made under the income limit in 2019 since I retired. If I file my 2019 taxes tomorrow, will that be early enough for the IRS to base its decision to send me a check on my 2019 figures? Or am I too late to the party?
milty
  |     |   Comment #108
@#85: Excellent question, and I don't have the answer as to whether if you file tomorrow will it gain you a check. However, I have read that if you miss out due to your 2018, 2019 income you could file for a rebate next year based on your 2020 income. And of course I think this stimulus could work in reverse, if you get a check based on 2018 but your income went up in 2019, 2020, you could find you might owe some back. Frankly, the stimulus check with all its implementation caveats in terms of who gets versus who needs seems to be a hasty mistake in my opinion. For now, I think expanding and/or extending unemployment benefits makes more sense.
milty
  |     |   Comment #109
Here's a snippet from WSJ: "The advance payments will be determined based on 2019 income—or 2018 income if that is all that is available to IRS—and the final amount of the benefits will be determined based on 2020 income and settled on the 2020 tax return. So people who ultimately qualify for more money than they receive this year—a person whose income drops from $100,000 to $70,000, for example—would get the rest through a larger tax refund or smaller tax payment in early 2021.
But people who ultimately qualify for less money than they got this year—a person whose income rises from $70,000 to $100,000—wouldn’t have to pay it back."

So, no claw back. As to filing now for 2019, instead of waiting till July, still have no idea what the cutoff date would be regarding these first stimulus checks. However, if there is a second wave of stimulus checks before July then may be a good idea to get it in earlier.
CDmanFL
  |     |   Comment #121
Thank you brother Milty! I just raced to file my 2019 taxes. All done now. Bring on the $1,200! Hopefully.
Rickny
  |     |   Comment #141
#121 I watch you fret over being able to add on to a GTE CD and are excited over getting a $1200 check. I feel this money should only be going to people in need that need the funds to help with getting food for a family or paying rent.
Bozo
  |     |   Comment #88
Regrettably, as we see more banks and credit unions facing loan issues, failures will inevitably follow. Old hands at DA remember the carnage of 2008. Without getting terribly political here, the knee-jerk reaction of some politicians to enact an eviction moratorium gives renters a green light to stop paying rent. On the other hand, landlords, who continue to face bills for property taxes (due here in CA on April 10) and interest on mortgages (due monthly), are given no slack. Landlord/property owners will default. Homeowners may well follow. Financial institutions will be faced with the terrible choice of foreclosing on properties they do not want, and most likely cannot sell, or extending loans and loan payment forgiveness, for the foreseeable future.

Lesson learned from 2008: Keep deposits within FDIC and NCUA limits. Banks and credit unions have failed, and they might so again. As I mentioned to the Wife, "return of principal" is ever so important in troubling times than "return on principal".

Stay safe.

Regards,

Bozo
John
  |     |   Comment #97
I didn't put a dollar over $250,000 in my GTE add-on though I wanted to. I hope I can keep the rate.
gregk
  |     |   Comment #98
When inflation and interest rates are 10% or more in a year or two from 10 trillion in make believe money, you might regret putting in anything.

My impulse 2 weeks ago was to rush filing up my MACU 3.5% add-on when I have the available funds April 1st, but now I'm not so sure about it.

Not that I can predict, but does circumspection in that regard have any merit? I suppose take a bird in the hand now, and an EWP later (assuming it's allowed) if one has to.
CDmanFL
  |     |   Comment #102
With all this pent up demand from consumers and the endless money printing from the FED, higher interest rates are inevitable. And I’m not concerned about bank/CU failures. The government is throwing everyone a lifeline. This may actually be the best time for those teetering banks and CUs. Their good Uncle Sam will reach into his deep pockets and write a check. The last thing Trump wants or needs are bank or CU failures and he’ll make sure this doesn’t happen.
Say What?
  |     |   Comment #137
Don't forget about acrued interest. You want to make sure that's covered as well during the term of the CD.
John
  |     |   Comment #140
I got it rigged so the $250,000 pays dividends each month. I only trust GTE so much, I hope they dont play games if I need to withdraw early.
Zemo999
  |     |   Comment #123
Yes, thanks Ken for bringing an important issue to our intention. Given that most folks here have money in interest-bearing accounts, I think it's critical for people to ensure that the coverage they've got for amounts above $250k is absolutely air-tight. This is especially true for institutions, of which there are many, that aren't able to put the acronym "POD", "ITF", etc. in the title of the account, which is the clearest proscribed method for NCUA, and likely FDIC, given how similar their insurance structures are. The NCUA stipulations are somewhat confusing and harrowing, as the language flips back and forth between those acronyms being somewhere in the 'electronic records of the institution' and language that refers to records that reflect a 'trust relationship' being established. Given the ambiguities of the language, I called NCUA, and got a rep on a recorded line to assure me that the way I had set up my extra insurance was entirely correct, and would be recognized as an informal trust across several accounts with the same institution, should they fail. He also affirmed that whatever the CU told customers wasn't any concern of NCUA, so you can't count on that at all. I also got my institutions to send me the best form of records available that shows the accounts are considered 'POD' accounts, given that the name doesn't appear in the account title. I would urge everyone to protect themselves in these matters. Yes, it's a PITA, but a whole lot better in protecting funds than telling the NCUA when if the CU fails, "But the credit union told me......."
Money pits
  |     |   Comment #126
Zemo999, the only way to make it air tight, it is not to put more money than $250K per SS#. Forget PODs, TRUSTs and other exotic money pits, the NCUA or FDIC will question everything if it comes to that stage of insurance. Make it simple and clear and do not make it depend on a semi educated clerk to protect your money.
Dave
  |     |   Comment #130
If I am reading this article correctly, it appears that the government is offering a government guaranteed alternative to Treasury bills that currently have negative yields.

If a person is willing to lose money to own T-bills, they should be more than willing to put that money into their bank checking account that has both instant liquidity and no cost. That statement assumes equivalence of the full faith and credit of the US Government, which is clear for the T-bills and appears to be the case for this class of deposits.

This policy may have the, presumably intended, effect of providing a huge amount of liquidity to the banking system. After all, if a bank can attract deposits at zero interest, they don't have to go to the discount rate window and pay that rate. The customer gets to avoid negative rates and avoid credit risk and retain liquidity.

Ken, would it be possible for you to verify the strength of the guarantee vis-a-vis T-bills and if their are dollar limits on accounts to which this policy applies?

Thanks for a(nother) informative article.
lou
  |     |   Comment #132
I think this only applies until the end of 2020.
Old Guy
  |     |   Comment #138
Forget about money....

I just hope I'm able ro still breathe tomorrow!
gregk
  |     |   Comment #148
Mountain America Credit Union (MACU) has rather peculiar provisions in regards to POD beneficiaries. Specifically, if you have multiple accounts with them (in my case four individual CDs) they won't allow you to name discrete or different beneficiaries for each individual account, but rather, any beneficiaries you designate will only attach to ALL your accounts collectively. This has concerned me relative to the applicability of NCUA insurance in the event it becomes relevant. I've named two beneficiaries with MACU and so assumed my assets with them are covered up to $500,000, but because each individual account has no specific beneficiary attached to it in POD fashion I've wondered whether the insurance coverage might be impacted by that. Any one else here confronted this circumstance with MACU and ben disturbed by it?
Zemo999
  |     |   Comment #150
According to the NCUA rep I spoke with, if all beneficiaries are attached to all accounts, then your insurance coverage is 250K times the number of unique beneficiaries. So, in your case, your two beneficiaries cover you to $500k. I'm uncertain what, exactly MACU does in terms of the POD (or its equivalent) stipulation. NCUA booklet and rep says that if POD or its equivalent (ITF, etc.) is in the electronic records of the bank, then the requirements of establishing an informal trust have been met, and NCUA will honor the formula of 250k times the number of unique beneficiaries in terms of deposit insurance. Amounts at an institution of over 1.25 million stipulated that all beneficiaries have equal shares in the event of a POD distribution. There are ways around that, but just having all beneficiaries having equal shares is the default method, and thus the easiest. I hope this is of some help. You can call NCUA directly, although my experience is by choosing option 1 you only get a recording, and whether they call you back can be a bit dodgy.
gregk
  |     |   Comment #151
Thanks for offering your understanding. I would think if you have beneficiaries named for your accounts that the POD stipulation would just be assumed, given that beneficiaries have no other function or purpose beyond that of receiving your funds in the event. This notion that "activating" their status as such for insurance coverage purpose demands some explicit reference to them being "POD" beneficiaries (that just naming and identifying them apparently doesn't confer) seems redundant and therefore doubtful.
What else could they be?
Zemo999
  |     |   Comment #157
gregk - Geez, this is such a complex issue because of the language that both NCUA and FDIC use. In the event of an institution's failure, the naming of beneficiaries *might* be construed by FDIC or NCUA as constituting an informal trust relationship to the account, and thus eligible for 250k per unique beneficiary in insurance coverage. But, for me, after reading the NCUA booklets, and speaking with an NCUA rep, I would not feel comfortable with that. The problem is that the language used flips between acronyms (POD, ITF, etc.) being in the *title* of the account (which makes the account an informal trust), *or* in the institution's electronic records the records indicate the existence of a *trust relationship* (or words to that effect - see the booklet from NCUA on that.) My point being that the language changes from POD in the title constituting an informal trust, and then, if POD (or equiv) is not in the title, rather than saying in the electronic records of the bank showing a POD account, it changes the language to 'indicating a trust relationship' - and it doesn't say exactly what that constitutes. The most lenient interpretation is that you have named beneficiaries. But the change in language apparently confuses even NCUA and FDIC reps - I have called through the years a number of times, and gotten quite opposite answers - ranging from yes, all you need to do is name beneficiaries, to other reps telling me that you have to have the Full Monty of the records showing a 'trust relationship' (however one wants to define that.) Let me give an example of how I arranged it so I can sleep at night: At one FCU I do business with, they can't put POD or its equivalent in the title. So, I called and asked if they could send me the 'electronic records' of the institution that indicated a trust relationship. What they sent me was the beneficiary designation form I signed when I opened the account. The title of that form is: "Beneficiary Designation For Payable on Death Account." Voila! They have connected 'POD" with my beneficiaries, and used 'Payable on Death Account' in plain English. They also listed all my account numbers with them on the form. And lastly, an FCU employee countersigned the document with their name. When I called NCUA, and spoke with a rep on a recorded line, explained to him exactly the documentation I had, and he said yes, you've met all the requirements, and calculated the amount of insurance I had, using the 250k times the numbers of unique beneficiaries on the form, I felt like I had this about as air tight as it can be. As I said, it's a PITA to do all that work. But I've got both the confidence, and the recording, that if the FCU goes belly up, I have a very strong case with NCUA that I've met their requirements. Sorry for this being convoluted, but I didn't invent the system or the language.
gregk
  |     |   Comment #152
I mean, suppose I have two beneficiaries listed in an FI's records for my accounts, but nowhere in those records can you find "POD" indicated? Are you suggesting in that circumstance the Trust status of my accounts doesn't exist and thus no insurance coverage would apply to my beneficiaries (250K each) but only to myself (250K total)?
alan1
  |     |   Comment #154
replying to gregk #152: From Code of Federal Regulations, Title 12, Chapter 7, Subchapter A, Part 745, Subpart A, Section 745.4:

(b) Required intention and naming of beneficiaries. The required intention in paragraph (a) of this section that upon the owner's death the funds shall belong to one or more beneficiaries must be manifested in the title of the account or elsewhere in the account records of the credit union using commonly accepted terms such as, but not limited to, in trust for, as trustee for, payable-on-death to, or any acronym therefore, or by listing one or more beneficiaries in the account records of the credit union. In addition, for informal revocable trust accounts, the beneficiaries must be specifically named in the account records of the insured credit union. The settlor of a revocable trust shall be presumed to own the funds deposited into the account.

(italics in original; not added for emphasis)

You may want to read the NCUA publication "Your Insured Funds", especially the section on "Revocable Trust Accounts" (starting at page 33 of the print edition)
https://www.mycreditunion.gov/sites/default/static-files/insured-funds-brochure.pdf
gregk
  |     |   Comment #155
Its clear then. Merely having account beneficiaries designated in the records of the FI (without any further stipulation of POD, ITF, or the like) is sufficient to effect
an insurable interest in those accounts of 250K for each beneficiary. Thank you for that, Alan.
alan1
  |     |   Comment #156
re Comment #155 --  Please note that the sources cited in my comment #154 are applicable to NCUA-insured credit unions, not to other financial institutions.  Your initial comment (#148) and Zemo999's response (#150) specifically dealt with Mountain America Credit Union and the National Credit Union Administration.
RxTx
  |     |   Comment #158
Section 2204. Allowance of partial above the line deduction for charitable
contributions

The provision encourages Americans to contribute to churches and charitable
organizations in 2020 by permitting them to deduct up to $300 of cash contributions,
whether they itemize their deductions or not.

Section 2205. Modification of limitations on charitable contributions during 2020

The provision increases the limitations on deductions for charitable contributions by
individuals who itemize, as well as corporations. For individuals, the 50-percent of
adjusted gross income limitation is suspended for 2020. For corporations, the 10-percent
limitation is increased to 25 percent of taxable income. This provision also increases the
limitation on deductions for contributions of food inventory from 15 percent to 25
percent.
Wanda
  |     |   Comment #159
I would like to change banking i formation

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