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Fed Meeting Preview and Deposit Rate Forecast - March 15, 2023Safety of Your Deposits in the COVID-19 Pandemic
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
DepositAccounts References:
- 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
Most of the response I received talked about how I had nothing to worry about, and repeated that no one has ever lost any money in a credit union failure (the person responding did not even make the distinction between insured and uninsured deposits so I was immediately skeptical of everything they said).
I was forced to reply several times to try to get a definitive answer to the question, but in the end I was never convinced that I did. It was a disappointing exercise.
I was told that the only thing they need to have on record, to ensure NCUA coverage, for each beneficiary is their name. That may or may not be correct since I didn't have a high level of confidence in anything I was told.
I was disappointed by their "don't worry about it" attitude, especially when they didn't even know the specifics of my situation.
The risk is not that you won't receive back money. The risk is that government spending is so far out of control that the money you receive might be worthless.
When you deposit money in the bank, you are a lender. And lending always comes with risks. The FDIC and NCUA never warn depositors about this risk. They meticulously avoid talking about it. That's the part that makes me nervous. I'd be more comforted if they said nothing.
Huh?
What else would you suggest folks put it in?
You have no way of knowing if the FI is maintaining the proper records to protect you or deposits. So one of the questions I asked the NCUA was whether or not evidence that the credit union provided to the depositor listing the beneficiaries on record, that are provided to the NCUA by the depositor in the event of the failure of the credit union, when the credit union did not maintain search records properly, would be acceptable to establish insurance coverage.
Their answer was yes, but as I relayed in my above comment I did not have full confidence in anything they told me. I felt they became indignant anytime I asked them a question about what would happen in the event of a credit union failing. It was not the kind of response I expected.
The question is, in the event that the FI was maintaining fraudulent records or inadequate records, do you as a depositor have possession of the necessary records to establish your valid insurance claim to the satisfaction the insurer and will the insurer accept such records from you, the depositor, for that purpose.
In the case of the NCUA, I was told that they would in fact accept evidence of a claim from the depositor if needed to establish its validity if the credit union did not maintain the proper records.
If that's true, it's important for you to keep both statements and anything else you need to establish your insurance coverage such as a list of beneficiaries provided to you by the credit union. If you don't have those things, and the credit union fails, and they do not have adequate records, you may have no way to establish a valid claim.
One thing I avoid is asking to find out "exactly" what a requirement is. I just want to know the requirement. And there often is no "exact" answer. I suspect there is no "exact" answer to the query of "for purposes of insurance what exactly has to be in the record."
Agency personnel, including at least one staff attorney, have seemed pleased to discuss such matters with me. And there are times when I request a reference to a section or subsection of the regulations that supports their answer; I quickly receive a response that turns out to be correct. But I would never initiate a request demanding to know "exactly" or "precisely' whatever. It' strikes me as confrontational.
In my opinion (and it's just mine) there is no correct or exact answer to the question, with respect to beneficiaries, "for purposes of insurance what exactly has to be in the record." Additionally, in my opinion (and it's just mine), the answer (not the "exact" answer) can be found in the Code of Federal Regulations. (I have never bothered to see if there are relevant statutory provisions in the United States Code.)
The FI stays solvent, the executives keep their jobs and stock. Win win.
Even smarter!
your $5 member share savings account is just a start.
The last thing depositors want to hear is that they're going to have to engage in some sort of legal wrangling to get their own money back, because there is no possible way for them to determine whether they can rely on the insurer's promises in the event of a claim since the rules are so fuzzy that they can't determine whether they are in compliance or not.
What you regard as fuzziness is more accurately described as the absence of handcuffs or a straitjacket. Imagine that, in addition to the name(s), the credit union must have x, y, z, etc. If one part of one of those "must haves" is missing, then the burden could fall on the member to demonstrate that deposits are insured, simply because the credit union's records do not reflect one tiny portion of a required item..
Names alone are not sufficient. More is required, but fortunately there is not an "exact" answer. The regulations are replete with words and terms such as "or", "not limited to", "commonly accepted". All sorts of alternatives, some which are not explicitly mentioned. These protect the depositor and beneficiaries. Such language reduces the possibility of "legal wrangling".
Please locate and read pertinent provisions in the CFR before blasting the NCUA for providing you with what I regard as useful information. In view of your oft-proclaimed financial acumen, I leave it to you to determine which provisions of the CFR are relevant.
Thank you for your service(s).
As long as you're within insurance limits, I think any bank or credit union, is nearly (nearly but technically not quite) as safe, because the government could not allow FDIC or NCUA to fail to pay a valid claim or the banking system would collapse. So again, they we print whatever money they have to to prevent that from happening.
Other investments like mutual funds that hold treasury securities, are similarly nearly as safe as directly holding the treasury securities (again it's nearly because nothing is technically as safe as holding the actual treasury securities).
The major risk with any of these instruments is the loss of value of the dollars. Getting your money back is one thing, preserving the buying power of the money you get back is another.
That's only an advantage if you assume that they would not accept documentation you received from the FI that establishes beneficiaries on an individual account or if you failed to obtain such documentation.
Assuming they would accept documentation of the establishment of beneficiaries you obtained from the FI from you, it certainly would not be worthwhile setting up a trust just for that purpose. Just ask the FI to provide you with a copy of the names of the beneficiaries of your individual account that they have in their records.
1. the NCUA "will notify all Trust Account holders and inquire how many beneficiaries are named on the trust"
2. additionally, the NCUA "may need a copy of the trust from the depositor."
So, at the very least, before the Trust Account holder can actually get funds: the NCUA would send a letter; USPS would deliver the letter; the Trust Account holder would respond to the letter; USPS (or other carrier) would deliver the response to the NCUA, unless the response could be faxed or e-mailed; NCUA would examine the response. The Trust Account holder might then be in a position to receive funds.
It seems that it would take significantly longer for Trust Account holders to receive money than schmoes like me. If the credit union's records show that the funds are insured, it should be very quick. If the credit union's records do not indicate that, only then would be there a need to submit documentation and for the NCUA to examine that documentation, and for the depositor to be in a position to receive funds.
But, as you describe it, Trust Account holders are going to have to wait a while in any case, in order to give then a shot at getting their money.
I'm basing this comment on what you wrote. I am not familiar with NCUA procedures re Trust Accounts at failed institutions. And it seems to me (and, again, I may be wrong on this) that it might be even more complicated if the NCUA doesn't send out checks and instead arranges for insured funds, or all funds, to be transferred to another institution. And if it's only insured funds that are to be transferred, it seems that nothing could be transferred for a Trust Account until the procedure described in your comment is completed.
If the procedure is as you described, it strikes me as a reason militating against using a formal trust.
Instead, if you intend to deposit an amount that would require beneficiaries in order for it to be covered by insurance, you should make sure in advance that the FI will provide you with documentation that the beneficiaries are on record. If not, don't open the account.
Also in response to #38, in almost every case, the trust accounts I have opened in both banks and credit unions required a copy of the full trust document for their records. So presumably (and I am also just speculating because I do not know with certainty), the insurers would not need to contact the depositor in such cases if they find the trust document in bank records. If this is true then there would be no disadvantage to a trust account in this regard versus a non trust account.
I'm also not terribly knowledgeable (I do know some things), about the situation of a credit union failure with an informal trust such as a P/O/D -- I've designated beneficiaries in the past, but avoided doing so for the purpose of increasing deposit insurance. (And it's unlikely that I would ever use that path for the purpose of increasing insurance.) So, I haven't looked into that in any depth; haven't gone through the Regulations on that, since it has never affected me.
So, I'm not sure of how big an advantage there is in having a formal trust for these purposes, but your comments indicate that there may well be some advantage. Thank you.
is to call (sometimes periodically) the FI after establishing my account and ask them to name the beneficiaries I've designated. If they can do so I typically feel comfortable my wishes have been recorded and the appropriate documentation is in place.
The name of the beneficiary may not be sufficient to guarantee deposits are insured, but it's the only single piece of information that the credit union _must_ have. There may be additional requirements, but no single one is a "must have."
Aside from that, if having more than $250,000 in a credit union is unsettling because of the rules and procedures regarding deposit insurance, or for any other reason, no one is forcing anyone to keep more than that in one institution. And, yes, you'll miss out on a good CD rate that appeared a number of years ago that required a minimum deposit of $1,000,000.
Just FYI
Our dedication to our members remains strong. Here's how we’re helping:
•
Waiving penalties for early certificate withdrawals1
•
Providing loans, extensions and deferred payments
•
Offering overdraft protection
•
Helping you help others with free money transfers
(copied from forum)
CapitalClimate | Mar 20, 2020
According to a CD specialist CSR, the operative word is "need". IOW, if someone has a legitimate financial emergency, i.e., loss of job or medical expenses, the waiver would apply. Otherwise, if the purpose is to chase other rate specials or gobble up muni bond bargains, normal penalties apply.
how106. Can you provide a citation for your reading source?
Thanks all!
Is there such a thing as some credit union that requires beneficiaries to be members? I can't say there isn't, but I've never heard of it, and I've had accounts with beneficiaries and dozens of credit unions around the country.
Let's see any citation that says that beneficiaries do have to be members.
You weren't asking me for a citation you were asking #54 for a citation.
"The account title or other account records of
the credit union must indicate the account is held
pursuant to a trust relationship. This rule can
be met by using the terms payable on death (or
POD), in trust for (or ITF), as trustee for (or ATF),
living trust, family trust, or any similar language to
indicate the existence of a trust relationship. "
Seems likely that if beneficiaries are listed, their records show it's a trust account even if the title doesn't say it. But I don't like to rely on chances or leniency. I would do some more investigation. I also have a GTE add-on, but I'm not using it now so I haven't looked into that aspect yet.
(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.
This is one of the rubs. The depositor has no control over the CUs records nor can they know if such records are being maintained by the CU. So a question arises.
In the event that the CU fails, and the beneficiaries are not specifically named in their account records, will NCUA accept documentation, provided by the depositor, that indicates that the CU represented to the depositor that the beneficiaries were maintained in their records?
Provided you meet the insurance requirements, there is almost no chance that you won't get all your dollars back in the event of a bank or credit union failure. The main risk is that the dollars you get will be worth less than when you deposited them because they more money the government creates the less the buying power of each dollar. So even though you may get the same amount of dollars back, you may suffer an effective loss. It's the same as the inflation loss risk but has the potential to be accelerated in the event of a large number of bank failures.
PD as investment advisor?
That might get you sued.
Revocable trust accounts may qualify for insurance coverage of up to $250,000 per beneficiary named by the owner (if a member of the credit union) that is separate from the individual coverage available to the trust owner (also referred to as grantor or settlor). For example, if a person with a revocable trust for $750,000 names a spouse and two children as beneficiaries, the entire $750,000 would have separate NCUSIF coverage ($250,000 per beneficiary). This coverage is separate from the coverage provided to the other types of accounts held by the trust’s owner at the same federally insured credit union.
https://www.ncua.gov/files/press-releases-news/NCUAHowYourAcctInsured.pdf
NCUA Irrevocable Trusts
Irrevocable trusts have separate coverage based on the beneficial interest. The interest of each beneficiary in an account (or accounts) established as an irrevocable trust has separate NCUSIF coverage of up to $250,000. In cases where a beneficiary has an interest in more than one trust arrangement created by the same owner, the interests of the beneficiary in all accounts established under such trusts are added together for insurance purposes and insured for a total of up to $250,000
Excellent citation. Would love to see similar information for both irrevocable and revocable trusts from the FDIC.
Let’s try again... please share the wealth...where is a citation to what you think the rule is?
What I write in that comment may or may not be reliable, but the cited NCUA publication is excellent.
Thank you for posting the link. Yes, this publication is excellent.
I would really love to find something equivalent for the FDIC.
Information about FDIC insurance coverage:
Summary information:
https://www.fdic.gov/deposit/deposits/brochures/deposit-insurance-at-a-glance-english.pdf
Detailed Information:
https://www.fdic.gov/deposit/deposits/brochures/your-insured-deposits-english.pdf
Less pomp and circumstance, drama and self absorbed hubris as some other posters, but just as useful. ;-)
https://www.fdic.gov/deposit/deposits/brochures/your-insured-deposits-english.html
I could not find any later version of the 2014 brochures so they may still be unpublished. Presumably the page reference above provides up to date information.
The 2019 editions of the FDIC brochures can be found (surprise, surprise) on the website of the Federal Deposit Insurance Corporation. They're located in the section dealing with (surprise, surprise) "Understanding Deposit Insurance - Brochures"
"Deposit Insurance At A Glance" (last updated 07/03/2019)
https://www.fdic.gov/deposit/deposits/brochures/deposit-insurance-at-a-glance-english.html
[Spanish version at https://www.fdic.gov/deposit/deposits/brochures/deposit-insurance-at-a-glance-spanish.html]
"Your Insured Deposits" (last updated 11/12/2019)
https://www.fdic.gov/deposit/deposits/brochures/your-insured-deposits-english.html
[Spanish version at https://www.fdic.gov/deposit/deposits/brochures/your-insured-deposits-spanish.html]
Unlike the conclusion of Comment #79, I advise against presuming anything. It's very easy to locate the updated 2019 editions available on the FDIC website.
How about 5 billion per account. Still too low for Warren Buffet to put it all in an Ally cd , but hey
It may be to expensive for a FI to pay it, never mind paying interest on your money. FDIC can only pay 5% of the insured accounts in USA, if 2 of the big banks collapse, nobody is safe anymore. The FDIC may not be able to pay you even a penny.
If all deposits are fully insured, then indeed it makes no difference # people vs amount held, and the premiums will be astronomical as a result. But since not all deposits are fully insured (there's a 250k limit), it does make a difference, and premiums are lower because of that difference.
All insurance involves a trade off between how much you are willing to spend for the premiums vs how much you want covered. Take car insurance. In many states it's very expensive and a lot of people get the minimum coverage allowed by their state so as to pay as little in insurance as possible because they either can't afford the price of "full coverage" or else just don't see the benefits being worth the cost (IE they could save/invest the difference and end up with more money to cover an accident with then if they paid the premiums and had the insurance cover it, and of course if they never have an accident, they'd have that saved/invested money in their account instead of the insurance companys).
It reads:
NCUA Publications: Your Insured Funds
I believe the National Credit Union Administration publication "Your Insured Funds" is the best non-legal, non-technical guide to NCUA deposit insurance. I will provide a link at the end of this post, but first a couple of notes:
1. There may be inconsistencies between this publication and other material produced. by the NCUA. After examining other material, and discussions with knowledgeable specialists at the NCUA, I strongly believe that "Your Insured Funds" is more accurate than other NCUA materials
2. In many areas, and especially in these times, there are people who take advantage of other folks' good faith, and who may sound authoritative. Some of those people do so for financial gain; some for political gain; and others just because they get some sort of kick out of preying on people. Do not be taken in by such people, here or elsewhere. Watch out for those who repeatedly post falsehoods, and those who make false accusations against NCUA employees who provide accurate and useful information. Authoritative-sounding pronouncements, especially when combined with outbursts of splenetic fury directed at NCUA employees should not be taken at face value.
Folks -- please be careful out there (and in here); please try to be safe; please protect yourself and others.
alan1
And the link to "Your Insured Funds" is:
https://www.mycreditunion.gov/sites/default/static-files/insured-funds-brochure.pdf
A Spanish version is available at:
https://www.ncua.gov/files/publications/guides-manuals/NCUAYourInsuredFunds%28Spanish%29.pdf
Can you quote one of these false accusations?
Remember last spring when everyone was told “you don’t need a mask,”. and then later the story changed to, “you don’t need a mask b/c we need them for health care providers and don’t have enough for everyone.” They don’t know what they don’t know!
How does one get a shot NOW? That is the question
Right NOW, the supply is still ramping up, so shots will we rationed to those on the front lines (Doctors, Nurses, and other health care workers) and the most vulnerable (elderly, those with co-morbidities) so look to hospitals and nursing homes as the first places where the shot will be available. Eventually, you should be able to get the shot in the same places you can get any other shot (such as for the Flu).
From the WSJ, 12/18 -
“Hospital administrators blamed an algorithm based on government guidelines that prioritized older people for vaccine doses, thus excluding a large portion of the younger people in training roles. David Entwistle, the chief executive of Stanford Health Care, spoke to the protesters and said changes would be made to address their concerns.” … “We are immediately revising our plan to better sequence the distribution of the vaccine.”
https://www.wsj.com/livecoverage/covid-2020-12-18/card/A7jOh9Phete3KchRwAjQ
Tempest, meet teapot.
PS. if your CDs are incorrectly debited or credited...where there is smoke there is usually a fire near. A couple of basis points here and there times the number of accounts is real $. If not then the FI/you won’t miss such amount...as the case may be
as for "people pay with their lives", name one individual who has died from this "mistake"? just one. What's that? you can't? no surprise there.