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Retirement Savings: How Much Should I Save Each Month?Uninsured IndyMac Depositors Ask FDIC Chairman for Help - Lessons To Be Learned
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ON BY Ken Tumin
Yesterday was another busy day for the FDIC with the closures of 9 banks including California National Bank and Park National Bank in Chicago. All nine banks were subsidiaries of the FBOP Corporation (see post). Like most of this year's 115 bank closures, another bank (U.S. Bank) assumed all deposits, even deposits above the FDIC limit. Last year's IndyMac depositors weren't so lucky. Those who had over the FDIC limit before IndyMac failed have only received half of their uninsured deposits, and it looks unlikely they'll get back any additional amount. As reported by this LA Times blog article, the FDIC Chairman Sheila Bair responded to IndyMac depositor's questions during a town hall meeting in Los Angeles this week. She couldn't offer help, but she provided some sympathy:
One of the main issues from depositors were from those who claimed they were misinformed by IndyMac employees regarding beneficiary accounts.
The uninsured depositors of IndyMac have set up the website IndyMac Depositors to organize their efforts to reclaim their lost money. There are a few stories of depositors who have claimed to have been misled. One is from June:
This letter on the website blog described how an unqualified beneficiary caused some money to be uninsured:
This comment on the website blog described two valid issues with FDIC insurance:
IndyMac's failure was before the basic FDIC coverage was temporarily increased from $100K to $250K. In addition, it was before the FDIC permanently changed the beneficiary requirements related to POD accounts which can extend FDIC insurance. So losses seen at IndyMac should be less common now. Nevertheless, an important lesson is to not rely on the bank representative's assurances when you exceed the basic FDIC insurance limit.
WaMu's Failure
No WaMu depositors lost money when WaMu was seized last year and JPMorgan Chase took over. IndyMac's closure and the loss of uninsured deposits probably increased the nervousness of WaMu depositors. This Puget Sound Business Journal article goes behind the scenes of WaMu's closure. It's interesting to read about the bank runs that occurred at WaMu and what WaMu did to try to prevent and deal with them.
References:
"I know you feel it wasn't fair," she told the depositors, a group of whom attended the session. The situation "troubles me greatly," Bair said, but added, "It's something that Congress has to fix."
One of the main issues from depositors were from those who claimed they were misinformed by IndyMac employees regarding beneficiary accounts.
The uninsured depositors of IndyMac have set up the website IndyMac Depositors to organize their efforts to reclaim their lost money. There are a few stories of depositors who have claimed to have been misled. One is from June:
An Indymac Bank representative told me that my savings were safe, I believed him and ended up loosing part of my hard earned life savings.
This letter on the website blog described how an unqualified beneficiary caused some money to be uninsured:
I had two CD's with the bank and I was assured that my accounts were properly insured by representatives at Indymac. Per the advice of Indymac Bank one account was held as an individual insured by the FDIC for 100k and the other account was held as a trust account with two beneficiaries (ITF's) and insured by the FDIC for 200k. I have been informed by the FDIC that one of my beneficiaries on my account is not "qualified" and I have uninsured losses that exceeds $105,000.00.
This comment on the website blog described two valid issues with FDIC insurance:
1. In general the insurance is only tentative: it is not confirmed to be good coverage until after the bank fails.
2. Even if your FDIC coverage is good when you make the deposit, the insurance can be lost (that is reduced significantly) by events occurring after the coverage starts.
IndyMac's failure was before the basic FDIC coverage was temporarily increased from $100K to $250K. In addition, it was before the FDIC permanently changed the beneficiary requirements related to POD accounts which can extend FDIC insurance. So losses seen at IndyMac should be less common now. Nevertheless, an important lesson is to not rely on the bank representative's assurances when you exceed the basic FDIC insurance limit.
WaMu's Failure
No WaMu depositors lost money when WaMu was seized last year and JPMorgan Chase took over. IndyMac's closure and the loss of uninsured deposits probably increased the nervousness of WaMu depositors. This Puget Sound Business Journal article goes behind the scenes of WaMu's closure. It's interesting to read about the bank runs that occurred at WaMu and what WaMu did to try to prevent and deal with them.
References:
