Bank & Credit Union Health Grades - Deposit Safety in COVID-19 Crisis

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The economic impact of the COVID-19 pandemic has just begun. Loan delinquencies and defaults will surely increase due to the forced business shutdowns. The Fed, Congress and the White House have provided significant support which should help, but there still remains uncertainty about how the economy and the financial system will fare. As we learned from the 2008 financial crisis, when the financial system is under stress, bank failures rise dramatically.

Health Ratings Based on Latest FDIC and NCUA Call Reports

DepositAccounts.com Bank Health Ratings page

Banks that are most likely to weather this financial crisis will be the ones that are currently financially strong. That’s where the bank health ratings that we compile at DepositAccounts.com can be useful. The financial health ratings at DepositAccounts.com are now based on the FDIC and NCUA call reports from December 31, 2019. To review the health grade of your banks and credit unions, check out DA’s Bank Health Ratings page. Scroll down this page, and you can search for your bank or credit union. When you find your institution’s profile page, click on the “Health” tab. That will show you the overall health grade for the institution and the health grade components. In addition, you can review the financials of the institution. For more details, click on the FDIC Certificate number (for banks) or the NCUA Charter number (for credit unions) to see the FDIC/NCUA profile page for that institution.

The FDIC and NCUA typically release call reports for the institutions they insure about two months after the quarter ends. So the next call reports for March 31, 2020 will not be available until late May or early June.

Impacts from Future Loan Defaults

Of course, even the strong banks could have a difficult time if they have large exposure to businesses and individuals hit hardest by the coronavirus pandemic. Many banks have already started to increase their loan loss provisions in anticipation of defaults. For example, JPMorgan Chase announced in its Q1 earnings report that it had added $6.8 billion to loan loss provisions.

The FDIC, the NCUA, and the other federal regulators have issued temporary rules intended to give banks more leeway in modifying loans to customers affected by the pandemic. This should give banks and credit unions more time to manage the loan losses. This may result in more time before regulators decide that an institution’s loan loss has reached an unmanageable level. So it may take many months, if not years, before we see a significant number of bank failures caused by the pandemic.

Lessons from the Bank Failures After the 2008 Financial Crisis

One lesson from the 2008 Financial Crisis is that it can take years before a bank is forced to close from the effects of a financial crisis. As you can see below, bank failures started to ramp up in 2008, rising from 3 in 2007 to 25 in 2008. The ramp-up continued in 2009 with the number of failures rising to 140. The number continued to increase in 2010 when it finally peaked at 157. The number of bank failures then slowly went down until it was back to single digits in 2015. From 2015 to 2019, bank failures were rare, with the annual number never exceeding 8.

The summary below shows the number of bank closures per year from 2006 to 2019:

  • 2006: 0
  • 2007: 3
  • 2008: 25
  • 2009: 140
  • 2010: 157
  • 2011: 92
  • 2012: 51
  • 2013: 24
  • 2014: 18
  • 2015: 8
  • 2016: 5
  • 2017: 8
  • 2018: 0
  • 2019: 4

Another interesting development that started after the 2008 Financial Crisis is how the FDIC managed most bank failures. Starting in 2008, the FDIC has very often been able to arrange for other banks to assume all deposits of the failed banks. It’s rare for the FDIC to be unable to find a buyer. When the FDIC is unable to find a buyer, the FDIC typically sends checks of only the insured deposits to the depositors of the failed bank. It’s mostly in these cases when uninsured deposits may be lost. For the vast majority of cases when the FDIC finds a buyer, the acquiring bank assumes all of the deposits, even those that are uninsured. One exception is brokered deposits. It has been common in the FDIC assumption agreements for the acquiring bank to not assume brokered deposits. Thus, depositors holding brokered CDs that exceeded FDIC coverage limits may have lost their uninsured deposits.

After the 2008 Financial Crisis, I kept track of the bank failures and the number of ones in which the FDIC wasn’t able to find buyers.

Out of the 140 bank failures in 2009, only 10 failed banks were not acquired by other banks. These were typically small banks. Out of these 10 banks, only 4 had at least one billion in deposits.

Out of the 157 bank failures in 2010, only 8 failed banks were not acquired by other banks. Most of these were also small banks. Only one of these 8 failed banks had at least one billion in deposits.

Even though the vast majority of bank failures don’t result in loss of uninsured deposits, it’s wise not to assume this will always be the case. When banks are closed due criminal actions by upper management, the FDIC often can’t find a buyer that’s willing to assume all deposits. Two examples of this occurred in December 2017 and June 2019. In both cases, management fraud resulted in the bank closures, and in both cases, the acquiring bank did not agree to assume uninsured deposits. Only insured deposits were assumed by the acquiring banks.

FDIC and NCUA Coverage for Amounts Above $250,000

For both of the bank failures described above in which the acquiring banks did not assume uninsured deposits, the FDIC provided the following instructions for depositors of the failed banks:

If you had more than $250,000 in your account(s), or if the total of your related accounts exceeds $250,000, your accounts may require review by an FDIC Claims Agent. Please contact the FDIC Call Center at 1-877-367-2718 to schedule an appointment with an FDIC Claims Agent.

When your deposits at a bank total less than the standard maximum deposit insurance amount ($250,000), it’s easy for the FDIC to pay you all of your insured deposits. According to this FDIC resource page, this includes the “principal and any accrued interest through the date of the insured bank's closing.” However, when your deposits exceed $250,000, it may require a review by the FDIC if the bank fails and a buyer can’t be found to assume uninsured deposits. If you ever find yourself at a review with an FDIC Claims Agent, you’ll be very glad if you had regularly reviewed your deposits to ensure all principal and accrued interest were under the FDIC limits. It's important to remember that this is your responsibility and not the bank's.

Long-time readers of DA know that there are many ways to maintain deposit insurance in excess of $250,000 at one bank or credit union. In this FDIC resource page, it is stated that:

Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $250,000 at one insured bank and still be fully insured.

To learn the details of the different ownership categories, I found this FDIC brochure - Your Insured Deposits (dated 1/2020) to be useful.

Three simple ownership categories include Single Accounts, Joint Accounts and Retirement Accounts. By having Single Accounts, Joint Accounts and Retirement Accounts at one bank, it’s possible for a couple to have up to $1.5 million of deposits that are fully insured at one bank. I verified this using the FDIC EDIE tool. I’ve included a snapshot of the tool’s output which shows $1.5 million being fully insured.

How a Couple Can Cover $1.5 Million with No Beneficiaries

how a couple can have $1.5 million in deposit coverage

Another ownership category can make it easy for one person to also have $1.5 million of deposits fully insured at one bank. That’s the Revocable Trust Accounts category. The informal revocable trust can easily be set up at most banks when you open an account. Here’s how the FDIC defines an informal revocable trust on page 10 of the FDIC brochure:

Informal revocable trusts–often called payable on death, Totten trust, in trust for, or as trustee for accounts–are created when the account owner signs an agreement, usually part of the bank’s signature card, directing the bank to transfer the funds in the account to one or more named beneficiaries upon the owner’s death.

This FDIC brochure also describes this important rule for revocable trust insurance coverage:

When a revocable trust owner names five or fewer beneficiaries, the owner’s trust deposits are insured up to $250,000 for each unique beneficiary.

This rule makes it easy for one person to have up to $1.5 million of deposits fully insured at one bank. This can be done by having a single account with $250,000 and one or more informal revocable trust accounts that total $1.25 million. The nice thing about this “5 or fewer” beneficiary rule is that you can designate one beneficiary (such as your spouse) to receive the vast majority of your deposits if you die. The four other beneficiaries can be designated to receive only a small part of the total. I’ve included a snapshot of the output of the EDIE tool which shows this:

How One Person Can Cover $1.5 Million with Beneficiaries

how one person can have $1.5 million in deposit coverage

Risks of Depending on Beneficiaries to Extend Insurance Coverage

There is a downside to using beneficiaries to extend FDIC coverage. It is possible that a beneficiary will not qualify and that will reduce your FDIC coverage. The following excerpt is from the FDIC brochure:

In general, the owner of a revocable trust account is insured up to $250,000 for each unique beneficiary, if all of the following requirements are met:

1. The account title at the bank must indicate that 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, including simply having the word “trust” in the account title. The account title includes information contained in the bank’s electronic deposit account records.

2. The beneficiaries must be named in either the deposit account records of the bank (for informal revocable trusts) or identified in the formal revocable trust document. For a formal trust agreement, it is acceptable for the trust to use language such as “my issue” or other commonly used legal terms to describe the designated beneficiaries, provided the specific names and number of eligible beneficiaries can be determined.

3. To qualify as an eligible beneficiary, the beneficiary must be a living person, a charity or a non-profit organization. If a charity or non-profit organization is named as beneficiary, it must qualify as such under Internal Revenue Service (IRS) regulations.

The last requirement is straightforward. Make sure all of your designated beneficiaries are living. If one dies, make sure to immediately replace the beneficiary. The FDIC provides no grace period for coverage purposes when a beneficiary dies.

The first two requirements are not straightforward, and they have caused a lot of worries since there is no standard at banks on how they document beneficiaries. Each bank has its own way of how it documents the evidence of beneficiaries to the account owners. It causes many customers to worry that the bank’s beneficiary records may not meet these two requirements.

I don’t have any advice that can provide 100% assurance for this concern. I suggest that at the very least you ask for and receive the evidence of the beneficiary information from the bank. Ideally, the evidence will be a copy of an official document such as a signature card that shows the trust relationship in the account title. In addition, it should name the beneficiaries. I did find this FDIC document that provides details of FDIC insurance coverage for revocable trust accounts. However, I’m afraid it still probably won’t help you obtain 100% assurance that you won’t have issues if you ever face the FDIC Claims Agent.

Deposits at Credit Unions

For deposit coverage at credit unions, the NCUA’s rules are very similar to the FDIC’s. This NCUA brochure - Your Insured Funds (dated April 2019) has similar details to the FDIC brochure. On page 35, it lists the three coverage requirements for revocable trust accounts. The NCUA also has an insurance estimator tool that’s very similar to the FDIC EDIE tool.

FDIC and NCUA References:

DepositAccounts References:

Related Pages: bank health ratings

Comments
Predatory Depositor
  |     |   Comment #1
"The first two requirements are not straightforward, and they have caused a lot of worries since there is no standard at banks on how they document beneficiaries. Each bank has its own way of how it documents the evidence of beneficiaries to the account owners. It causes many customers to worry that the bank’s beneficiary records may not meet these two requirements.

I don’t have any advice that can provide 100% assurance for this concern. I suggest that at the very least you ask for and receive the evidence of the beneficiary information from the bank. Ideally, the evidence will be a copy of an official document such as a signature card that shows the trust relationship in the account title. In addition, it should name the beneficiaries. I did find this FDIC document that provides details of FDIC insurance coverage for revocable trust accounts. However, I’m afraid it still probably won’t help you obtain 100% assurance that you won’t have issues if you ever face the FDIC Claims Agent."

Ken, thank you for addressing this. As you acknowledge, there is a gap here that creates uncertainty about whether or not a depositor will have insurance coverage at the time of the bank's failure. From your quotes, the requirements say:

"1. The account title *AT THE BANK* must indicate that the account is held pursuant to a trust relationship."

" 2. The beneficiaries must be named in ... *THE DEPOSIT ACCOUNT RECORDS OF THE BANK* (for informal revocable trusts)..."

The depositor has no control over what the bank has in its records so therefore cannot ascertain if these requirements are met or not and therefore whether their deposits are insured or not.

It does not say that a document in the possession of the depositor establishing these facts is sufficient to meet these requirements.

In my view this is just one of the many serious flaws in the insurance system. With rules this arcane and indecipherable, there is no way the responsibility for ensuring coverage should be on the shoulders of the depositor. The depositor has no way to even discern whether or not the requirements are being met. ONLY THE BANK has access to the information needed to establish this and the potential expertise to ensure compliance.

There are several ways this could be remedied. Here are a few:

1. Increase the insurance limit to say $3 million (that's just arbitrary, might be a better number) for all individual, joint and informal trust accounts regardless of how many beneficiaries they have.

2. Require the bank to warn depositors who are over the limit and have a grace period for them to remediate.

3. Have banks refuse to accept deposits that are not insured. That way if an insured bank takes your money, you are guaranteed insurance coverage. The only burden on the depositor then would be to ensure they are working with an insured bank.

I have been warning about this for a long time. Now I'm afraid the chickens are going to come home to roost. I think there is a chance there will be a torrent of people who thought they were insured and will find out the hard way that they aren't.

==========

"The nice thing about this “5 or fewer” beneficiary rule is that you can designate one beneficiary (such as your spouse) to receive the vast majority of your deposits if you die."

If the bank allows you to. I have not seen many that do in my experience.

===========
"If you had more than $250,000 in your account(s), or if the total of your related accounts exceeds $250,000, your accounts may require review by an FDIC Claims Agent."

Q: What's even scarier than a visit from an auditor from the IRS?
A: See above.
Jennifer
  |     |   Comment #2
I am terribly concerned about the lack of proof that beneficiaries are actually on file (in the event you plan to go above 250,000 by naming beneficiaries).
I have more than 250K at one of the larger credit unions and the only proof i could get from them recently was by calling their 800 number and having the call center employee read me the names of the beneficiaries from the computer. Finally i got an email address and emailed them and ask them to email back with the names of the beneficiaries on file (which they did). So at least i have an email from the credit union.
Predatory Depositor
  |     |   Comment #3
#2
The emails should also mention that the account is a trust account.

I always try to get them to provide a letter stating that the account is *recorded in their records* as a trust account with the following beneficiaries... and list them. That way at least they are attesting that they are complying with the necessary requirements (for what that may or may not be worth).

But it is often like pulling teeth to get that, or sometimes to get anything at all.

See if you can get a copy of the signature card. Some FIs will give that to you and some won't. But it is often even better (maybe) than a letter if you can get it since it should show that the account is registered as a trust and list the beneficiaries.

I don't want to alarm people with my comments. But I do think there are some serious concerns here. The purpose of these insurers is to instill confidence in depositors. Speaking for myself I find the very structure of the insurance system to be so flawed that it does just the opposite for me. It's hard for me to imagine how any insurer whose intentions were to cover the insured would devise a system so convoluted and impossible to navigate.

I get that the vast majority of depositors have less than $250,000 on deposit so they are served by the insurance system. But if they are going to offer insurance for deposits over that amount, they need to do it in a way that the depositor can have confidence in their coverage. And in many cases they cannot.

The short answer is to have no more than $250k per FI. But that is not practical for some. And even then there are pitfalls! (for example if the bank is a subsidiary of another bank and you have $250k in each).

The system is broken. Only Congress can fix it. And they are on recess while the country is burning. Don't expect any sympathy for "rich" people like you!
Ally6770
  |     |   Comment #53
I have a copy of each of my accounts on letterhead paper listing account numbers and beneficiaries on each account. I make 2 copies for each of my 2 children and they have a copy of each account, phone number, contact person etc. Each paper is put in a sheet protector (on sale at Walgreens 50 for 49¢) and in a 3 ring notebook. The do not have the amount but the account numbers and the listing that they are the beneficiaries. They will have all the information to bring or mail to the bank and or credit unions along with a death certificate after making contact a person at each of the institutions. The money would be theirs at that time. Financial institutions do not contact beneficiaries.
lou
  |     |   Comment #4
"If you had more than $250,000 in your account(s), or if the total of your related accounts exceeds $250,000, your accounts may require review by an FDIC Claims Agent."

This is the part that worries me the most. How long will it take to satisfy a govt bureaucrat before you get your money?
#5 - This comment has been removed for violating our comment policy.
lou
  |     |   Comment #6
Can you imagine having to wait 2 weeks before you even get to talk to this claims agent? It would probably take a month if we were experiencing a pandemic.
Predatory Depositor
  |     |   Comment #14
And after that month they'd say... Oh lou! We're so sorry! The records were so close! You almost had it!... But that typo... It's always the typos...

But here's an FDIC souvenir keychain. At least you won't go away empty-handed....

Oh Lord I think I'm losing it in this lockdown!...
lou
  |     |   Comment #7
I don't want to quibble with Ken's excellent post, but he did mostly talk about FDIC rules, which are not always the same as NCUA regs. For instance, the first requirement Ken mentions in his post is not required for NCUA credit unions. They don't require having the trust relationship specified in the account title. I doubt you could find a credit union that does this. There has been much discussion about this in the past on these boards and many have spoken to NCUA officials to confirm this important difference between FDIC banks and NCUA credit unions.
Predatory Depositor
  |     |   Comment #9
My recollection is that neither the NCUA nor the FDIC require the word trust or similar to be in the account title. If you look at the FDIC website a quick reading of the requirements does make it appear as if this has to be in the title (unlike the NCUA) But a more in-depth reading indicated that it could also be in the bank records instead. That's my recollection.

I'm pretty sure that it does not have to be in the title of the account for either, but if someone is in that situation they should check it out for themself.
Predatory Depositor
  |     |   Comment #12
As if there aren't enough confusing things to know about this topic, keep in mind that FIs often use a different "title" on both statements and mailing address than they have in their records. In some cases it's an abbreviation or some other permutation of the "official" title on the account in their records.

I have a couple of formal dress with extremely long names. They are always chop down statements and mailings.

So the title on record may be different than anything that you've seen on paper.
Predatory Depositor
  |     |   Comment #13
Hahah! No no formal dresses here. It should say formal trusts... Sorry I almost always dictate my posts on my phone, and it's often not a very good stenographer...
Mak
  |     |   Comment #10
The monthly statements I get from any credit union that are in a trust account are worded that way at the top of the statement.
lou
  |     |   Comment #11
Which are you referring to? A revocable trust you set up for yourself (outside of the credit union) or the credit union's internal trust agreement for beneficiaries?
Shelby
  |     |   Comment #8
As I have previously stated here change your accounts at all FI's into revocable living trust accounts and list your beneficiaries on your trust. In case of a bank failure FDIC/NCUA will see you held an account in trust at the FI. They will contact YOU and ask for verification of the trust document and listed beneficiaries.Just make sure the trust is dated before the FI went under. FDIC/NCUA does not depend on the FI to hold a copy of the active trust/they depend on the depositor to have that information.
Predatory Depositor
  |     |   Comment #22
In the process be prepared to pay a lawyer thousands of dollars to draw up the trust, to transfer your accounts to different banks because many of them don't allow formal trusts, for your trust estate to pay potentially big administrative costs and to pay thousands of more dollars in legal fees every few years when they change the laws and you have to amend your trust.

You solve one problem, but create three more.

Did I mention the second career you'll be taking on doing all the extra paperwork involved with formal trusts?

Other than that I can't complain about that advice.
flaff
  |     |   Comment #25
Everyone nearing retirement or in retirement should have a trust. Many advantages including avoiding probate, please don't scare people from having a trust and they can be simple to create and amend at any time without including a lawyer.
Predatory Depositor
  |     |   Comment #30
Yes avoiding probate is the big selling point that lawyers use to hook people on a trust

in spite of what the legal profession would have you think because they make a fortune on overselling trusts, for the vast majority of people, probate is no big deal. And the fact is that for most people, the cost of having a trust will be more than the cost of probate.

Only a very narrow set of people benefit from having a trust. The real beneficiary of most trusts is lawyers.
JimDavis
  |     |   Comment #41
Thats true of almost everything!
Ally6770
  |     |   Comment #54
Stocks, all banking accounts have beneficiaries. Autos in my state do not require any paperwork. Children, husband etc can just bring in the auto title when a person passes and a need title can be issued as long as it is worth less than $60,000 in my state. A Lady Bird Deed will cover the house and all its furnishings and everything inside as long as it is filed with the Reg of Deeds. If you want certain items to go to certain people you may want a will or if there is someone you trust to give them the articles, or do it yourself before you get too old. Most people do not need a will only as a back up if you have not set things up correctly. No accounts, autos, homes or anything in the house need be in the will if your state allows a Lady Bird Deed.
Science and Facts not Lies
  |     |   Comment #15
Important Question:
For a SINGLE person, does one have to have create MULTIPLE other accounts like your example graph above shows and your text implies? Or can the "5 or less" additional beneficiaries be assigned to just ONE CD account?

For instance: SINGLE person, only the one required "$5" savings account, and then the one CD ACCOUNT (over 250k) -- with the 5 POD Beneficiaries assigned to just that CD account. Would that afford the extra coverage?

Or MUST one make multiple dummy savings accounts as shown in your graph example (ie, Savings2, Savings3, Savings4, etc) and spread those 5 additional beneficiaries between them?

I'd always understood it to be that you could just assign up to 5 beneficiaries to just your CD account to get that extra coverage, but your article seems to imply you have to create a new account for each additional beneficiary?

Thanks...
Science and Facts not Lies
  |     |   Comment #17
Adding to the confusion, I just went to the NCUA's Insurance Estimator, and it only seems to let you enter one beneficiary per account, implying that for each additional beneficiary you MUST have additional account for each beneficiary?
Predatory Depositor
  |     |   Comment #19
You raise yet another good point of confusion. Quite a few credit unions I've dealt with claim that whatever beneficiaries you assign on your application apply to all accounts that you have with them. That's dubious. May be right may not be. One thing is for sure, the financial institutions are very fast and loose with the insurance rules because they have no skin in the game. They don't care whether you insured or not.

You certainly don't need to have five different accounts with one beneficiary each to insure up to five times $250,000 or $1.25 million dollars.

You can have all five beneficiaries on the same account.

I recently insisted on seeing the title card at one credit union where I have an account. I was dismayed to see that one of the cards showed that the beneficiaries applied to one of the accounts, but not the other. The credit union claimed that it didn't have to show that the beneficiaries applied to the other account. They may be right, but I insisted that they check the box for the other account as well and they did.

I'd like to conclude that the only way that you can have certainty is to hire a lawyer to figure it all out. But I have a very expensive lawyer, and he gave me the wrong advice.

Just hope the virus gets you before the FDIC does!
Predatory Depositor
  |     |   Comment #21
#17
Are you asking about having five different beneficiaries entitled to different shares of the money on deposit in the event of your death by using five different accounts with one beneficiary each with different amounts of money in each account as opposed to one account with five beneficiaries and assigning a different percentages to each beneficiary?
Predatory Depositor
  |     |   Comment #16
You know I always find it ironic that when you open a bank account they provide you with three reams of paper disclosures in 14 different languages that no one ever reads or cares about and tosses immediately in the trash can bringing down the South American rainforest at a record pace. It lulls you into thinking caveat emptor doesn't apply here, you're safe in the government's loving arms.

But the one thing you do care about, whether or not your money is safe... No disclosure there. That's your job to figure out!
Science and Facts not Lies
  |     |   Comment #18
However, the NCUA's webpage has this language (note the "Or is held for more than one beneficiary"):

"Can a revocable trust account have more than $250,000 in insurance coverage?
If a revocable trust account has more than one owner (e.g., husband and wife) or is held for more than one beneficiary, the insured balance of the account can exceed $250,000 and still be fully insured."

So that implies that a single person CAN have just a single account with 5 PODs just to that one account, and still have the extra coverage? (Though the NCUA's estimator won't let you add more than one beneficiary per account).

So what's correct?
lou
  |     |   Comment #20
You're doing it wrong. The NCUA estimator will allow you to add more than one beneficiary per account. Before posting here, try following their instructions as carefully as you can.
#23 - This comment has been removed for violating our comment policy.
Science and Facts not Lies
  |     |   Comment #26
Pred Dep (or anyone):
Sorry if I wasn't clear. Let me put the question this way:

Say I belong to a Credit Union.
At this credit union, I only have TWO accounts:
(#1) The mandatory savings account to join (with $5 in it)
(#2) A large CD with... say $400k as an example.
No other accounts at this CU (no other additional savings accounts or anything).
Single person (so no spouse, no joint owner).

Say the CU lets you assign 5 POD beneficiaries to the CD ACCOUNT.

Under the above conditions (assuming the credit union did everything right), will the full amount of $400k be insured? Or still only $250k?

The confusion is whether the extended coverage will be granted if all 5 POD beneficaries are listed for just ONE account (in this case, all on the CD account) -- or if extended coverage will only be granted if, instead of one giant $400k account, you had 4-5 DIFFERENT accounts that TOTAL $400k (maybe $100k each at the same institution, etc), and put one benefiary on each one?

I'm just asking, if (other than the mandatory $5 savings account) you only had ONE account (a large CD account that's, say, $400k), if assigning 5 POD beneficiaries to just that ONE account would up the insurance (assuming the credit union has it correct in their files).
Thanks
#27 - This comment has been removed for violating our comment policy.
Predatory Depositor
  |     |   Comment #28
The insurance on your bank accounts is only as good is the private sector economy. Ultimately, the only money available to pay off insurance claims in the event of a bank failure, comes from taxpayers. And taxes come from businesses doing business.

So the only sure way that you can count on collecting any money in the event that this crisis causes widespread bank failures, is to get the economy moving, businesses open, and people back to work as soon as possible. The longer that doesn't happen, the faster the government will run out of taxpayers' money and the less likely the banking system will survive, or that you will recover anything.

The best deposit insurance, in fact the only deposit insurance, is getting businesses open and people back to work.
#29 - This comment has been removed for violating our comment policy.
Kaight
  |     |   Comment #31
I found Ken's writeup helpful and useful. However, his focus on banks regrettably does not address my current concerns. At present virtually all of my money is in one credit union or another. This is because I found higher interest rates at the credit unions, and also because I found credit unions generally more willing to offer add-on CDs.

For example, Ken's listing of the number of bank failures by year was extremely interesting and revealing. But to help me personally I would need to see that same data for credit unions. Do they tend to fail more quickly than banks? more slowly? I dunno. Maybe the failure numbers for credit unions were very similar or the same as banks. But on my own, I dunno.

On background, it is the aforementioned add-on CDs which are acting to focus my money into ever fewer credit unions. This in order to avoid inferior current CD offerings with their vastly lower APYs. I don't really want to concentrate my money like that. But the differences in APYs are overwhelming.

The credit unions I'm using, with a single exception, are darn good ones.  In the absence of the coronavirus pandemic my concerns regarding institutional failure would be nil.  I had this game plan starting way back, and it is working out well, except that:

Last year I did not see the pandemic coming.  The possibility never even occurred to me.  With better prescience I would have opened still more add-on CDs.  As it is I have only four, and one of those is solely for IRA funds.  Live and learn.
lou
  |     |   Comment #32
Kaight, there haven't been many credit union failures where uninsured deposits weren't protected. Usually all these deposits from a failing credit union are acquired by another credit union. A good example would be when Penfed acquired Valor's deposits.

My only concern, if it should happen, is having to deal with a NCUA official to prove all my deposits are insured. How long would that take? As ken said, the few times it has happened, they have been very small credit unions where there was some kind of financial malfeasance.
Kaight
  |     |   Comment #33
Thanks, lou. I appreciate your input.
#34 - This comment has been removed for violating our comment policy.
alan1
  |     |   Comment #35
A useful tool for research re liquidated credit unions can be found at the NCUA website.
https://www.ncua.gov/support-services/conservatorships-liquidations
Kaight
  |     |   Comment #36
Thank you, alan1. You are right. That site is beyond useful; it actually answers all my questions!! Much credit to you for posting such helpful information. The data is a tad bit more granular than I need. But it can be consolidated very easily.

Bottom line, and in simplistic terms, it looks as if credit union depositors will "have enough time". What I mean by that is, using history as a guide, CU institutional failure before fall (of this year) appears unlikely. By then we will be able to see ratings based on data released at end of second quarter (end of July). That data will be the first which truly reflects impact of the pandemic. I do not believe the data just released, end of March, will reveal much of value to those of us concerned about CU institutional failure owing to the pandemic.

It's clearly much too early to panic. But later this year we need to keep eyes wide open!!

ETA

Just wanted to provide here alan1's valuable link in clickable form:

https://www.ncua.gov/support-services/conservatorships-liquidations
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Choice
  |     |   Comment #38
Knight...recall long lines at banks not too long ago. And talking about timing...Ken did it right! Proper Prior Planning Prevents... Poor Performance
Predatory Depositor
  |     |   Comment #39
I remember standing on one of those long lines in the late 70s waiting to get into the failed bank to pick up my check.
Science and Facts not Lies
  |     |   Comment #40
I spoke to the NCUA this morning, and they confirmed that if one were to have 5 POD beneficiaries assigned to a single CD account with, say, $400k, that would still give the extra coverage (the $400k didn't have to be split among different accounts).

NOTE: the NCUA rep also said that in all the many years the rep has been at the NCUA, they've never had any depositers lose their money, even if it was over 250k. Not a guarantee of course, but at least it seems like they usually try to cover people even over 250k. (Most of the time, other CUs simply take over, and only rarely does it just fail outright.
Kaight
  |     |   Comment #42
Thank you, SFNL. That's great information! Still gonna keep a sharp eye out this fall, though. Belt and suspenders.

If the data released end of July, and available in form of updated ratings to all of us in the fall, reveals serious weakness in one of my CUs owing to the pandemic, not sure I would have the courage to hang in regardless. At the same time, we don't know how the American economy will unfold post May. Maybe the virus will subside and our CUs generally will be able to strengthen and come back. Hope so.
tiretime
  |     |   Comment #43
I lost quit a bit at CBS credit union a year ago. Please don't mislead people.
lou
  |     |   Comment #44
Tiretime, was the money insured?
tiretime
  |     |   Comment #45
Lou, did you read the original comment? Of course my money was not insured, that is why it was lost! The point is depositors do lose money, NOT what the original person claimed.
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NOTE: the NCUA rep also said that in all the many years the rep has been at the NCUA, they've never had any depositers lose their money, even if it was over 250k
lou
  |     |   Comment #46
I think he meant when the amount over $250,000 is insured.
tiretime
  |     |   Comment #47
Lou, what about this comment confuses you:

the NCUA rep also said that in all the many years the rep has been at the NCUA, they've never had any depositers lose their money
#48 - This comment has been removed for violating our comment policy.
tiretime
  |     |   Comment #49
So yeah, the point here is the comment is wrong.
Science and Facts not Lies
  |     |   Comment #56
No need to be nasty, lou. All it does is reflect badly on you.

For others who were unclear, I simply related what the rep told me.

We had just been talking about money over the normal 250k limit, and what might happen if the CU failed, and then all of a sudden "couldn't find any proof" of the POD beneficiaries attached to the account. When I told the rep the CU currently has the POD beneficiary names in their system but weren't able to send me a printout of such, the rep suggested asking them if they could perhaps send just a screenshot from their system. Then the rep, personally, added that as long as they had been at the NCUA, no depositer had lost money, "even if it was over 250k." Which is what I posted. But I then even clearly wrote right after that, that what the rep said was "Not a guarantee, of course", being just their personal experience from since they had been at the NCUA. I was simply passing on my conversation with them
lou
  |     |   Comment #58
Wow, I was giving you the benefit of doubt, and defending you when tiretime questioned your post. So if what your posting is correct, the NCUA rep is either an ignoramus or you are misconstruing the conversation. I'll let the readers decide.
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alan1
  |     |   Comment #50
#47 -- The ambiguity lies in this: Did the representative say (or mean) that no one has ever lost insured deposits, even if the amount was over $250,000, OR did the representative say (or mean) that no one has ever lost a penny in deposits, even if the deposits were uninsured.

I believe the representative meant (and probably said) the former. _If_ the representative said (or meant) the latter, the representative was incorrect. I suspect the poster's description of the representative's words was inartful.

There are numerous cases (actual cases, not descriptive examples) available at the NCUA website, documenting instances where depositors lost uninsured funds. I don't have the time to dig them out, but I have researched this matter in the past. People have lost uninsured funds at credit unions, and there are numerous cases of that on the NCUA website.

ETA: I see that two more comments on this issue appeared, while I was typing the above.
Kaight
  |     |   Comment #51
The CBS fiasco was caused by massive, undetected, embezzlement by the credit union's leader over a long period of time.
I don't deny anything is possible.  But some things are more far fetched than others.  The CBS CU was a very, very small CU and the circumstances there were most special.  For example, the embezzler was a former NCUA official who therefore knew exactly how to cheat and steal while avoiding NCUA scrutiny, since he knew NCUA oversight procedures inside out.

Also because the CBS CU was so small, there were no checks and balances.  All power was concentrated in one person, the leader and embezzler.

Again, anything is possible.  But I think chance for embezzlement at the credit unions where I'm doing business, which are HUGE compared with CBS (NFCU is one, for example), are minimal.  However, concern remains about impact of the pandemic on even larger institutions, and that is where my attention is focused.
lou
  |     |   Comment #52
Alan1 and Kaight,

My concern is not that the govt won't stand behind the insurance, but having to deal with a NCUA rep who may not be aware of some the more sophisticated things Ken outlined in this post. I can only imagine trying to teach a NCUA rep the finer points of NCUA insurance when you have over $250K in one institution.

Also, how long would it take to get final approval from NCUA to get your money released? Imagine dealing with them now during a pandemic? I'm pretty sure i would get my money, but I don't look forward to the brain damage I may incur while interacting with govt bureaucrats.
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Ally6770
  |     |   Comment #55
If anyone has questions about account titling you can email the NCUA or the FDIC and get a written answer to print and put with your papers.
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Bank & Credit Union Health Grades Updated from Latest Data (2019 Q3)

The FDIC and NCUA recently released their reports of the third quarter health of the institutions they insure. They also released the 2019 Third Quarter Call Reports of all insured institutions. We use these reports to derive our financial health grades for each institution. We have finished importing this data, and all of the health grades for banks and credit unions have been updated to reflect the September 30, 2019 reports.

You can view the latest health ratings of your bank or credit union in our Bank Health...

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The FDIC and NCUA recently released their reports of the second quarter health of the institutions they insure. They also released the 2019 Second Quarter Call Reports of all insured institutions. We use these reports to derive our financial health grades for each institution. We have finished importing this data, and all of the health grades for banks and credit unions have been updated to reflect the June 30, 2019 reports.

You can view the latest health ratings of your bank or credit union in our Bank Health...

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The FDIC and NCUA recently released their reports of the first quarter health of the institutions they insure. They also released the 2019 First Quarter Call Reports of all the insured institutions. We use these reports to derive our financial health grades for each institution. We have finished importing this data, and all of the health grades for banks and credit unions have been updated to reflect the March 31, 2019 reports.

You can view the latest health ratings of your bank or credit union in our Bank...

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The FDIC and NCUA recently released their reports of the fourth quarter health of the institutions they insure. They also released the 2018 Fourth Quarter Call Reports of all the insured institutions. We use these reports to derive our financial health grades for each institution. We have finished importing this data, and all of the health grades for banks and credit unions have been updated to reflect the December 31, 2018 reports.

You can view the latest health ratings of your bank or credit union in our Bank...

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The FDIC and NCUA recently released their reports of the third quarter health of the institutions they insure. They also released the 2018 Third Quarter Call Reports of all the insured institutions. We use these reports to derive our financial health grades for each institution. We have finished importing this data, and all of the health grades for banks and credit unions have been updated to reflect the September 30, 2018 reports.

You can view the latest health ratings of your bank or credit union in our Bank...

Continue Reading

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