OT: Strong rumor FDIC insurance being bumped from $250k to infinite
Hello MGoBloggers,
While I mostly lurk (and laugh) at the board posts here, I found out some interesting information during one of my daily calls at work (banking industry).
Apparently the feds are going to increase the amount of FDIC insured cash in bank accounts from $250,000 to, well, infinite. There is a "strong possibility" this occurs, and occurs soon.
For those unaware, basically the FDIC (Federal Deposit Insurance Corporation) guarantees/protects your funds in accounts. Previously that amount was $250,000, meaning if you had all $300,000 of your money in one account, $250,000 of that money would be insured. Folks would have multiple accounts to spread their money out to insure it; now it looks like that's going to cover all of your cash in an account.
Thought I'd bring this up to inform everyone; sorry if it's too OT or irrelevant (even though these weird times).
Stay safe and have fun everyone!
They've already killed the rate of interest on savings accounts, so why not?
Okay, I'll bite...
Why are they doing this?
To protect the Clampetts in case Mr. Drysdale invests everything in Enron and crashes the Commerce Bank of Beverly Hills.
Also to divert attention from Miss Hathaway as her sexual harassment of Jethro Bodine has gotten completely out of hand.
Wait, I thought that Miss Hathaway was in a lesbian relationship with Nellie, damn she goes both ways!
Market stability. So people don’t sell everything and buy all treasury bonds to protect their nest egg.
That doesn't make any sense. FDIC insures what you have in your bank account, not what you have invested in equities.
Other kinds of ownership categories include certain retirement accounts, such as IRAs, trust accounts and employee benefit plan accounts.
Yeah, isn't that the SIPC?
If you have equity with a brokerage account with a brokerage firm in cash, stocks or equity index funds it’s FDIC insured up to 250k. If that firm goes bankrupt that’s all you get back. If you have ownTreasury Bonds they are covered one for one infinite But I’m not an expert.
this is incorrect.
FDIC only covers cash in specific accounts, typically savings and checking, occasionally other very specific designation. It does NOT cover brokerage accounts, that would be SIPC. This is where it gets nuanced, SIPC does insure some portion of cash, however it is meant to be your operational cash, i.e., cash you use for buying and selling, not all your life savings you park there. Additionally, many brokerages, such as an etrade, will have a deposit sweep program where they will move your cash to a bank account is FDIC insured.
Back to the SIPC point, they don't protect the value of your account, they will only protect and deliver back to you like securities you owned. In this case if it was treasuries they would deliver those to you which are backed by the US govt
Hopefully that clarifies
Thanks for the clarification.
Because when a nation with 130 trillion dollars in unfunded liabilities decides to write a 2 trillion dollar check to quote unquote stimulate the economy, the 250k that the FDIC will currently insure will soon be approximately enough to buy a loaf of bread...
Inflation is not a risk at this point
Hyperinflation
Nope, every other country wants dollars too. The dollar is so strong right now that nothing the gov't could do will make inflation.
Nope, every other country wants dollars too. The dollar is so strong right now that nothing the gov't could do will make inflation.
Some amount of inflation wouldn’t be the worst thing, better to go up to 5% than risk deflation, which is worse
the only immediate thing I can think of, is then somehow helps small businesses and corporations who have large cash sums that are typically not insured?
I don't know, just guessing
It's to protect the little man, who is most at risk. Let's say you only have a mere $500m and the government is reckless, allowing banks to do whatever they want. BOOM! Everything goes to shit due to something nobody could see coming. Now the idiot taxpayer is on the hook & your yacht collection can continue to grow.
We shall see, this may be different. Maybe not Guillotines, but the let-them-eat-cake crowd is doing what they can at the moment to find their backs against the wall
Not going to happen any time soon, imo because of the added reserve cost to ensure and because that would de-stimulate the economy.
Also election year+giving benefits to the upper middle class.
It's a bit of a fiction to begin with anyway, so they might as well say it's infinite.
The FDIC is only required to meet a statutory reserve ratio of 1.35% of all insured deposits across the country (a typical big bank has maybe 35 to 45% of its deposits insured--LINK), with an ideal target of 2.00% (meaning it's always closer to 1.35). They can handle maybe one or two moderate-to-largish banks tanking at a time (it cannot ever hope to cover the biggest of the big like Bank of America, JP Morgan, or Wells Fargo which each have over 1T in deposits-- LINK).
If something systemic causes multiple banks to fail at the same time (which is what happens in a real financial collapse and damn near happened in 2008), the FDIC has no chance whatsoever to cover all those deposits. It only has $107B on hand (LINK) and can only borrow 30 Billion from the U.S. Treasury in an emergency (EDIT- this was raised to 100B after 2008 financial crisis- see LINK at p7, fn12, but still that's less than 3% of total insured deposits).
At best, the Fed would step in and just print, print, print money so people can still pull money out of the ATM, but you can imagine what happens to the value of a dollar at that point.
So the FDIC does legitimately help when there are isolated bank failures. That said, FDIC insurance broadly is mostly an illusion. A necessary one, probably. The whole system is based on psychology.
Prior to the great recession the FDIC insurance was limited to $100K. They increased it to $250K during the great recession and for a period of time had unlimited insurance for noninterest-bearing demand deposits (checking accounts). The FDIC's biggest fear is a liquidity crisis. A fundamentally sound bank could be pushed into a crisis from a run on the deposits and not because of bad portfolio of investments. Banks have longer term assets and shorter term liabilities. That's how they make money. They earn a greater rate on their assets than they pay for their liabilities (your funds on deposit).
Too big to fail banks are deemed systemically important financial institutions (SIFI) and are required to submit living wills to the regulators. The living outlines the SIFI's strategy for rapid and orderly resolution under the Bankruptcy Code in the event of material financial distress or failure of the company.
Avril Lavigne Was Replaced By A Clone Named Melissa
I actually don't particularly support the fed and I don't think monetary policy is very useful as a tool in the grand scheme of things but holy shit, where to start? The fed is not privately owned, it's a governmental institution.
You can certainly argue that the fed hasn't always acted ideally, especially with the benefit of hindsight but to claim it is directly responsible for wars and depressions is nuts.
Sure hope no one stuck their money in a mattress and then took a 100 year nap. Is the fed responsible for global inflation or just in the US?
I'll give you this one.
The Treasury Department mints money, not the fed.
The fed is audited already, fuck off with your Rand Paul bullshit.
If you can't make an argument against something without wearing your tinfoil hat, please don't bother doing so.
The fed is a bit of a mix, though mostly public as you say. It has a board, much like a private company would operate. But those board members are nominated by the President and confirmed via senate. It’s overall guidance and goals are given by congress but congress doesn’t control how they achieve those goals. They are accountable to congress, but not funded by it.
it’s a REALLY weird setup. Anyone who says they understand the Fed and it’s real role are mostly lying. I know I don’t fully understand it, but I know I get it more than most.
your actually really close so far, just a couple of missing weird bits. Lets break down those bits
Board of Governors is nominated by press and confirmed by Senate
The government (Congress / President) write the laws (think Dodd Frank) that the Fed must interpret and enact
Their budget is funded by the banks they oversee
They are owned by member banks which put up cash and or equity to become members
It gets a little fuzzier in some places though. Like some of the liquidity the FRB is pumping in is via special purpose vehicles capitalized by funds from the Treasury. Quasi is still the best descriptor methinks on the whole given the hybrid nature.
yeah fair enough!
The Federal Reserve is not a government institution
IDGAF what Google tells you
No thank you.
I mean, if people are just splitting across separate accounts already, you're effectively insuring infinite sums of money as is. So this just takes an unnecessary step out of the system.
That might be true when dealing with systemic failures, but not for individual bank failures. If large amounts of money must be split across multiple banks to be fully insured it minimizes the risk to the FDIC that could come from a single bank failure.
Imagine a scenario under which a bank is in trouble and so starts offering unsustainably high interest rates to attract deposits. The influx of deposits could be significantly higher if not mitigated by the FDIC insurance limits, making the costs to the FDIC of an eventual failure much higher.
Your scenario is addressed by existing regulations such as 12 CFR 337 which preclude problem banks from use of brokered deposits, as well as limits on deposit pricing. There could still be exceptions such as outright fraud, e.g. Washington Federal Savings Bank or some sort of apocalyptic economic scenario of rapid deterioration but in that latter case we're probably all screwed regardless. In general this paradigm works well systemically, even through the Great Recession, but it can make it difficult for problem banks to obtain liability funding.
if they did that the FDIC could issue a PCA (prompt corrective action) and limit the rate they can pay.
Also Ally tried to do this when they re-branded from GMAC and the FDIC politely asked them to lower rates
I really thought it was per bank. I work at a non-profit and they insist in not having more than 250,000 per bank.
Yeah, it's per bank. Most banks do offer a reciprocal deposit product (CDARs might be most popular?) where the bank acts as a custodian and divides it up between various other banks in the network. Essentially they're doing the operational aspect of going around and depositing it at multiple banks on your behalf so that it is simpler to manage for the customer and you have a central point of contact. For a fee.
Individual accounts above the insurance limit are certainly a minority by dollar amount and volume but they are not uncommon by any means.
Our whole economic system is a sham built on a field of bullshit
I'm no farmer but I thought a field of bullshit is good for crop growth
Fair enough
It's a travesty of a sham of a mockery—a travishamockery.
This has all the credibility of a chatsports post.
So is my $373.56 IRA balance still covered? And that balance is only after today's rally.
The answer is: it depends
Thanks, that's good to know if I all of a sudden get like $245,000 to deposit.
Just FYI, most state lottery commissions are now allowing you to claim your winnings by mail.
I was told there would be no math.
Finally, a chance to put all that money from all the versions of Monopoly into my otherwise meager checking...