Posts Tagged ‘FDIC’

The Claw[backs]

Friday, July 8th, 2011

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(photo credit: mangpages)

It’s kind of an understatement to say that taxpayers were peeved when they ended up footing the bill for the government bailout of the “too big to fail” banks. So they may take some comfort in a new FDIC rule that will seriously punish the leaders of failed financial institutions. Among other things, it says that any executive responsible for the collapse of a major financial firm is subject to spooky-sounding “clawbacks.”

Clawbacks are the equivalent of making an executive return two years worth of their salary to the government if a government agency has to step in and handle the collapse. Big banks will also be required to have a plan in place before they go up in flames, to avoid the kind of sweeping support the government was forced to provide in 2008 and 2009.

That’s a lot of pressure on a relatively small number of people. What do you think – whose responsibility is it to keep a financial institution on the straight and narrow? Should employees lower on the corporate totem pole be punished as well?

Who is watching the banks?

Tuesday, December 22nd, 2009

Since banks play such an important role in the economy and in your life (assuming you’re not keeping your money under a mattress), they are are heavily watched by several government agencies.

The government wants your money to be safe and to ensure that any business calling itself a bank subscribes to a very high operation standard – you shouldn’t worry if the local bank on the corner is legit. That being said, there are three main federal organizations along with individual state agencies that regulate banking on both a national and local level.

The main federal organizations focus on different areas, but work together to ensure that the banking system runs smoothly:

  • Comptroller of the Currency – approves new banks, issues banking laws, and makes sure banks are following the law
  • Federal Reserve Board – provides financial services to banks, watches out for risky behavior, and maintains stability of banking system
  • Federal Depositors Insurance Corporation – insures people’s money against any possible bank failures

State agencies act in similar capacities (regulation, enforcement, and oversight), but only for banks within their borders. All in all, these federal and state agencies are carefully monitoring and analyzing every bank to make sure your money is safe.

What happens to your money if your bank disappears?

Thursday, November 19th, 2009

Don’t worry, just because your bank has evaporated doesn’t mean your money will too – no screaming necessary. Every major bank in the country is insured by the Federal Deposit Insurance Corporation (FDIC); it’s the government organization in charge of protecting your deposits (up to a certain amount) and keeping the banking system running smoothly. But what happens when a bank outright fails?

Although rare, when a bank does fail the FDIC can step in one of two ways. The preferred method is where the FDIC will try to find a healthy bank to buy the failing bank’s assets, which would mean your funds are transferred over to the better bank. Without you doing anything, your money is automatically put in a safer place. On the other hand, if a buyer can’t be found, the FDIC will write you a check for your money.

How quickly and for how much? The FDIC insures your money up to $250,000 per account and typically sends checks out within a few days of the bank failing. Since the FDIC’s creation, no one has ever lost a single penny of insured funds – a pretty good record for a 76-year-old organization. Either with a new bank or in a hefty check, you can breathe easy knowing you’ll get your money back.

First Health Insurance, Now Bank Insurance

Thursday, September 24th, 2009

It’s not just the healthcare industry that’s compensating for costs by raising premiums. Check out the FDIC’s plan to finance the next wave of bank failures.

  • The Federal Deposit Insurance Corp. exists to protect customer deposits at banks up to $250,000. But with so many banks failing in the past year, the FDIC has had to pay out more than they expected, and projections indicate their fund will be out of cash early in 2010 if action is not taken.
  • To combat the drain without relying on government assistance or increasing the rate it charges to banks for customer deposit insurance, the agency’s board has decided to propose a kind of advance in premium payments from the banks it insures – to the tune of $45 billion, or three years’ premium payments.
  • Banks have been mostly supportive of the plan, expressing relief that the rates – which have already been increased once this year – will not go up again.

Facts & Figures

  • So far in 2009, 94 banks have failed.
  • FDIC projections indicate a potential $100 billion increase in failed bank payments through 2013.
  • Banks are already paying $17 billion into the fund this year, including the rate increase.

Best Quote

“It’s clear that the American people would prefer to see an end to policies that look to the federal balance sheet as a remedy for every problem. In choosing this path, it should be clear to the public that the industry will not simply tap the shoulder of the increasingly weary taxpayer.” – Sheila C. Bair, FDIC Chairwoman

Why is a bank better than your mattress?

Wednesday, June 10th, 2009

Carving out a secret hole in the side of your mattress may seem pretty cool, but it’s really not a practical place to store your money (it doesn’t sound too comfortable either).

Mattresses, along with stuffed animals and shoeboxes, all seem like safe places to store your money (supposing no one else knows where it is), but you’re actually putting yourself in a financially bad position. By storing your money in places like these and not a bank, you are slowly losing money and risking all of it too. How does that happen?

Banks are not just money storage facilities; they use your money to offer financial services (at a cost) to other customers and in turn pay you interest on a regular basis. By keeping your money in a bank, you are actually earning money as opposed to just hiding it away. Banks also keep your money safe; your money is guaranteed up to $250,000 by the Federal Deposit Insurance Corporation (FDIC), a government organization, in case something happens to the bank. No one has ever lost a penny of covered funds from a bank failure since the FDIC was created in 1933. Compare that to losing your wallet or your sister raiding your mattress – you are not getting that money back.

What does this mean for you? Well, you can either be sure about the safety of your money (while earning a little extra at the same time) or you can hide it away under a mattress and hope no one ever peeks under the sheet.