FDIC: You are screwed... Well not quite.

[Sapiens]

http://www.fdic.gov/anniversary/insuring_deposits.pdf

Seen in print on MSM. See for yourself, now why would they use a Gold Certificate that only the Fed can redeem? Oh, that's right the little guy is screwed...

[tree]

Re: FDIC: You are screwed... Well not quite.

I pulled 100k out of a regional bank last week. A few days later it hiked the apr on the money market fund. The question is -- yes the FDIC will make you whole, but how fast? Maybe very fast if it's a matter of printing the money and allowing you to transfer digits electronically elsewhere. But what will those dollars be worth in terms of purchasing power? I wish I were inclined to buy land at this time...maybe I am. And live on it in a trailer or tent! p.s. see frontpage story WashingtonPost today Sunday June 22 on all kinds of loans now going bad at regional banks. At least the Bush admin screwed up and put somewhat smart in charge at FDIC, I'm told. Sheila Behr--yes, gentlemen, it's a girl! Haha!

[swgprop]

Re: FDIC: You are screwed... Well not quite.

Sheila Bair is smart like Bernanke is smart .. an academic and a bureaucrat with no practical real world experience. She, Bernanke and Paulson make quite the triumvirate of incompetence.

[jacobdcoates]

Re: FDIC: You are screwed... Well not quite.

Tree

If a Bank fails and the deposits are insured by the FDIC in most(normal) cases you will have access to your funds within a couple of days. On the other hand, normal time are not expect to remain around much longer, but legally the FDIC can pay you back over 20 years.

[grapejelly]

Re: FDIC: You are screwed... Well not quite.

Personal experience: beware if you go into your bank, and do some banking business, and there is a stranger hovering over the bank teller...that is the time to panic and withdraw all your money immediately.

[seanm123]

Re: FDIC: You are screwed... Well not quite.

Picked up a copy of Business Week on my plane ride home this evening. What struck me as odd was the full page add from the FDIC touting "throughout the FDIC’s 75-year history, no one has ever lost a penny of insured deposits as a result of a bank failure."

What me worry? If there was an icon for worry, I would be using it right now simply for the fact the FDIC is advertising..

[Guest]

Re: FDIC: You are screwed... Well not quite.

Friday, June 20, 2008 - IS THE FDIC TRYING TO TELL US SOMETHING?

Eric Roseman - Commodity Trend Alert.

Something smells a little fishy to me...The Federal Deposit Insurance Corporation (aka the "FDIC") just launched a series of full-page advertisements in U.S. newspapers. On the surface, these ads are celebrating the FDIC's 75th anniversary.

According to the ad, the latest campaign, published in Monday's Wall Street Journal, celebrates the institutions' long-term safety net of public funds up to US$100,000.



The full page, and no doubt expensive, ad serves to remind depositors that the FDIC is there to protect cash deposits and CDs. In all my years of reading the Journal and other financial newspapers, I've NEVER seen the FDIC advertise their work. So doesn't it seem a little suspicious that the FDIC took out a full-page ad in the midst of the country's worst financial crisis since 1990? I've got to wonder if the FDIC is firing a warning salvo ahead of a rash of small bank failures in 2008 and possibly, in 2009.

Are more banks likely to fail? Maybe the FDIC wants to remind depositors that the government ONLY guarantees your cash deposits and CDs up to US$100,000. The government created FDIC during the Great Depression. At the time, businesses were collapsing and bank failures riddled the economy. From 1920 to 1934, a total of 9,812 banks were suspended, closed, failed or merged, according to Colonial Statistics.

From March 6 to March 13, 1933, President Roosevelt declared a banking holiday. During that week, all financial institutions were closed and depositors could not access their funds. During the Great Depression, the Roosevelt administration also confiscated gold ownership. The number of U.S. bank failures since the onset of the credit crisis last July is still under 100. But from 1988 to 1990, over 1,000 American banks failed, mostly because of the Savings & Loans crisis.

Considering the depth and longevity of this crisis, it's probably fair to assume many more banks will succumb to failure or suspension, especially smaller banks. In fact, a few months ago, Fed Chairman, Ben Bernanke, warned that he expects a rash of smaller banks to fail because of weak capital ratios and bruised balance sheets.

But the Fed did bailout Bear Stearns in a forced merger with J.P. Morgan Chase in March. They will also rescue other large U.S. banks if they pose systemic risk to the financial system. These include J.P. Morgan Chase, Citigroup, and Bank of America. The Fed is desperately trying to help FDIC member banks rebuild their capital ratios and cut interest rates to 2% recently.

Mortgage lending has collapsed. Consumer credit is especially difficult to secure, especially while these banks' balance sheets are eroding. We've already seen enough massive write-downs and plunging capital ratios to be jaded by the numbers. I've got a feeling the FDIC will be quite active over the next 12 months as smaller banks, including possibly some regional banks, head into bankruptcy.

ERIC ROSEMAN

[tree]

Re: FDIC: You are screwed... Well not quite.

I'm a dumb tube and only know what I'm told, but a number of folks in public policy circles and no friends of Wall Street have told me that Behr is exceptionally good.

For example, she has talked about consumer issues that Bernanke, Paulson, etc. have not been willing to touch.


What's going on with the FDIC? Well, some banks are going to fail and the FDIC will make their depositors whole. If depositors at other banks believe that the FDIC will make them whole too, they may not rush to withdraw their money and those banks will remain standing. If there is a massive loss of consumer faith, and a nationwide bank run--which I believe is totally possible and I'm sure that Washington does too -- then we are are in deep do-do.

What concerns me is the suddenly increasing rates on savings accounts and CDs. This isn't marketing. This is distress. I pulled all my $$ out of a large regional bank the other week (and I'm sure I'm not alone). A few days later, the rate on its already high money market fund went up.

[Sapiens]

Coming soon to at least one area bank: CDARS

http://www.pressofatlanticcity.com/1...ry/188343.html

A typical depositor wanting to insure an account for more than the $100,000 limit imposed by the Federal Deposit Insurance Corp. would have little choice but to divide the money and insure each part individually.
But finances can get overwhelming with having several accounts at more than one bank.

A CD system available throughout the country for several years - but only in New Jersey this year - aims to change that.

The Certificate of Deposit Account Registry Service, more commonly known as CDARS and pronounced "cedars," allows depositors to insure an account for more than $100,000 and up to $50 million without having to personally split up their money.

Best of all, say CDARS proponents, customers are dealing with only their original bank and receiving a single statement.



CDARS - run by Arlington, Va.-based Promentory Interfinancial Network - is an electronic network of nearly 2,000 banks, mostly community ones, which share the responsibility of insuring an account.

More than a dozen banks in New Jersey participate. None with locations in southeastern New Jersey is a member, according to the CDARS Web site, except for Washington Township-based Parke Bank, which has a branch in Northfield.

A sluggish economy and the credit crisis have helped to double the number of depositors with a CDARS account since July, the network organization says, since people are looking for other ways to keep their money secure.

Participating banks are benefiting. As part of the CDARS network, a bank can join weekly auctions to be involved in another bank's CDARS account - in turn, that account becomes another funding source for the first bank, said Robert Kuehl, the former chief financial officer for Parke Bank.

"It helps banks with liquidity because if you need money for that week, you can bid aggressively and you know you can get money that following day," Kuehl said.

Municipalities also can open CDARS accounts.

Before New Jersey allowed the program, municipalities could not have more than $100,000 in one bank, unless that bank put up the same amount in collateral.

For those who happen to run a municipality or have bank accounts that require a large insurance policy, here's how the program works:

If you have an account worth, for example, $500,000, it would be divided up among network banks - most likely six banks in order to keep each account under the $100,000 FDIC insurance limit.

Your bank would open up one CD account at a determined rate, and then the other five participating banks would deposit equal amounts into separate accounts at your bank. The money doesn't leave your original bank, and with the separate accounts, all of them are collectively insured by the FDIC.

Banks pay a nominal fee to participate, although they don't typically pass costs on to customers.

While Parke Bank is a CDARS member working with other banks, it does not currently offer the product to its own depositors. Kuehl said there are plans to roll out CDARS on the bank's retail side this fall.

For more information about CDARS, visit the Web site www.cdars.com.

To e-mail Erik Ortiz at The Press:

EOrtiz@pressofac.com

[jacobdcoates]

Re: FDIC: You are screwed... Well not quite.

Sapiens,

I'm really surprised that the FDIC hasn't shot this down yet. Since it would seem to magnify their deposit risk enormously. Theoretically the could be on the hook for all cd's and from my reading they don't have nearly enough reserves to do that. What do you think? Does it magnify their risk or actually decrease the probability of a bank run, because people feel more secure?

[tree]

Re: FDIC: You are screwed... Well not quite.

At a large regional bank, I undid all my CDs earlier this year. I recently persuaded my mother to undo hers at Wachovia.

[c1ue]

Re: FDIC: You are screwed... Well not quite.

Jacob,

I think you may be missing the point.

By magnifying the insurance capability, the FDIC could be trying to increase deposits in the system.

Increased deposits means less possibility of bank failures.

It is very much like a double or nothing bet, although in this case I think it is more 10x or nothing.

But if the FDIC can drive up deposits sufficiently by lending their credibility to more bank deposits, they in turn increase the health of the regional banks. After all, it is these banks who are too small to be rescued and are suffering from the RE bubble bust.

[jacobdcoates]

Re: FDIC: You are screwed... Well not quite.

C1ue,

I can see how it might help regional banks by making peoplefeel safer about putting their money in Cd's at the banks. I also agree that it is very risky. I have very strong doubts that they will be able to achieve the increase in deposit to make the risk worthwhile. Granted I don't know a lot of people with a couple of hundred k to invest in Cd's, but the idea would seem foolish from the get go. A possible myopia of my view point, given what I have seen and learned over the last couple of years.

[tree]

Re: FDIC: You are screwed... Well not quite.

I'm not among them, but I know that there are many folks who put cash millions into high-interest earning savings accounts (at a single institution) and CDs last year.

They include the bulk of savings of risk-averse older folks who didn't want anything but insured bank accounts, or some of the cash portion of portfolios of sophisticated bucks-up folks.

Remember--last year FDIC-insured online savings accounts were paying as much as 6 percent. At the time, households that exceeded their FDIC limits (which can be way over $100k depending on how accounts are configured) figured that, in case of bank failure, the FDIC would make everyone whole--as it did for over-limit savers when savings & loans failed in the late 1980s.

Can the FDIC do so again? That's the question for those tempted to leave their money in banks now as they desperately raise rates to keep cash deposits from leaving.

Young people and risk-takers may be tempted to stay and take the higher FDIC-"insured" rates, but I have no doubt that many older folks who lived through the Depression (like my affluent godparents) are fleeing.

[c1ue]

Re: FDIC: You are screwed... Well not quite.

Tree is correct - for most of us 30 to 50 in iTulip - cash is fairly scarce. Stocks, bonds, and other assets are the order of the day.

However, people 55 and above have a disproportionate amount of cash. These are the beneficiaries of the past 3 decades of asset inflation; whether the cash is life savings, proceeds from real estate, business income, whatever - there is a lot out there.

Some of it was conned into the REIT/hedge fund/LBO, but the ensuing collapses of these schemes is reinforcing existing cash bias.

The FDIC scheme is one which will encourage this cash to flow into the regional banks as opposed to the bank of Sealy.

Risky? maybe.

But think of it this way:

1) FDIC is not playing with its own money
2) Extra cash flowing into regional banks may not save them all, but certainly will keep fewer from busting
3) Cash that disappears in the failed banks may not be more than the cash saved by ones that don't fail.

All in all, why not do it if you are the FDIC? I don't even think it is nefarious; this policy can be construed as a counterpoint to the cash raising efforts by the big boys.