It was apparent last Sunday when the Fed held an emergency FOMC meeting and announced drastic policy actions, the COVID-19 (coronavirus) pandemic has the potential of seriously impacting the financial system. Also, as we learned from the 2008 financial crisis, when the financial system is under stress, bank failures rise dramatically. Thus, it’s reasonable that savers would be concerned about the safety of their deposits. To help ease those concerns, the FDIC published this March 18th press release for bank customers, and the NCUA published a similar March 19th press release for credit union members to reassure the public that “insured deposits are safe.” The press releases also warned the public to beware of scammers who are taking advantage of people’s bank concerns in this pandemic. Here’s an excerpt of the FDIC press release:
In light of recent developments related to the coronavirus, the Federal Deposit Insurance Corporation (FDIC) is reminding Americans that FDIC-insured banks remain the safest place to keep their money. The FDIC is also warning consumers of recent scams where imposters are pretending to be agency representatives to perpetrate fraudulent schemes.
Since 1933, no depositor has ever lost a penny of FDIC-insured funds. Today, the FDIC insures up to $250,000 per depositor per FDIC-insured bank. An FDIC-insured account is the safest place for consumers to keep their money. Learn more about deposit insurance here. Some banks may have adjusted hours or services in compliance with Centers for Disease Control guidance on social distancing. Customers’ deposits remain safe in these banks, as does customer access to their funds. Banks continue to offer ATM, mobile, or online banking services, and many continue to provide services via drive-through windows.
The press release notes that some banks are following CDC guidance. That’s also the case for credit unions. Many financial institutions have been temporarily closing branches or closing their branch lobbies while keeping their drive-throughs open. For example, Regions Bank alerted customers on its website that “Region branches open by drive-thru or lobby appointment only as of March 19.” It was reported in the media on March 18th that Chase informed employees that it was temporarily shutting down close to 1,000 of its bank branches (about 20%) to reduce the spread of the coronavirus. As the FDIC advised, bank customers’ access to their funds remains safe even though they may not be able to walk into their bank branches to make withdrawals.
Combating False Claims That “Savings Confiscation” Is a Possibility
A March 19th FDIC press release has gone beyond providing general information. Instead, it targets two companies that the FDIC claims are publishing false information on the safety of the U.S. banking system. The FDIC is demanding that the company Monetary Gold “immediately stop and correct its misleading advertising that falsely claims consumers' FDIC-insured deposits are at risk of forfeiture.” The FDIC is also “calling upon Newsmax.com to stop publishing these misleading ads” in which Monetary Gold “falsely asserts that Federal law permits banks to take its depositors' funds.” I wasn’t able to find the specific sponsored ad mentioned by the FDIC, but I did find a similar one attributed to a “strategist at Monetary Gold” which mentioned “savings confiscation”. The article claimed that the government “could decline using taxpayer funds to bail out a failing bank, and instead allow banks to confiscate a portion of all deposits.” The FDIC press release emphatically states that:
These assertions are false. Federal law is clear that in the unlikely event of a bank failure, customers' insured deposits would be fully protected up to the $250,000 limit.
The FDIC appears to be hard at work to ensure that the public’s trust in the U.S. banking system remains solid. Pandemic fear has already caused Americans to engage in a lot of irrational behavior like hoarding toilet paper. This fear has the potential to cause bank runs in which people make massive bank withdrawals in fear that their money could be lost. The FDIC was created during the Great Depression after bank runs contributed to widespread bank failures in the early 1930s. These FDIC press releases are highlighting the effort underway to dispel these irrational fears before they get out of hand.
Financial Health of Banks
The March 18th FDIC press release reminded the public that “no depositor has ever lost a penny of FDIC-insured funds.” The NCUA also made a similar statement regarding credit union deposits. It’s important to note that this statement only covers “insured funds.” These are deposits that fall within the FDIC/NCUA coverage limits. Deposits above the coverage limits have been lost in the past after bank failures. That’s one reason to review your deposits to ensure they are below the coverage limits. Please see my article titled “Safety of Your Money - Deposit Insurance Coverage Limits” for more details.
Even if your deposits are under the coverage limits, there are still reasons to want your banks and credit unions to be financially healthy with very low odds of failure. For example, you could lose a high rate on your CD if your bank or credit union fails. There’s a list of downsides of doing business with a financially weak bank under the graph in the DA bank health page.
Latest Financial Health Data
The DA financial health grades are based on the FDIC and NCUA quarterly call reports. The FDIC and NCUA publish the call reports about two months after a quarter ends. Both have recently published the call reports for the fourth quarter of 2019. We have imported the data, but a technical issue is preventing updates for credit unions. However, the import was successful for banks. Thus, we now have the financial data and financial health grades for all banks based on call reports from December 31, 2019. Credit union data and health grades are currently based on September 30, 2019 call reports.
You can review the Texas Ratio of every bank and credit union by using DA’s Texas Ratio Look-Up Tool. The Texas Ratio is an industry-standard bank health metric. It indicates how much capital an institution has available compared to the total value of loans considered at risk. This is an important component of the health grade that DA assigns to each bank or credit union. To review the health grade and the other grade components in addition to the Texas Ratio, just click on the name of the institution in the table of the Texas Ratio Look-Up Tool. That will take you to DA’s profile page for that institution. Then click on the “health” tab which will take you to the institution’s health section. This provides the financial details in addition to the health grade and the health grade components.
FDIC and NCUA References:
- Latest FDIC info on deposit insurance
- Latest NCUA info on credit union share insurance
- FDIC list of failed banks
- NCUA database of failed and conserved credit unions
- Evaluate the Financial Health of Your Bank or Credit Union
- Safety of Your Money - Importance of Deposit Insurance
- Safety of Your Money - Deposit Insurance Coverage Limits
- Safety of Your Money at Banks - Fraudulent Transfers
- Maximizing Your FDIC Coverage with Beneficiaries
- 10 Lessons from the 2008 bank failures
- My bank health and failure posts