FDIC: Banks Are Going To Fail, But Don't Worry About Your Money

Sheila Blair, Chairman of the FDIC, wants to let you know that a few banks will probably fail during the current credit crisis, but you shouldn’t worry about your money because its insured up to $100,000 for a regular bank account and $250,000 for a self-directed retirement account (IRA).

Q: What if banks fail in the credit crisis? Will customer money be safe?

A: Banks are a safe place to put money, even if there are failures, because deposits are insured up to $100,000 and self-directed retirement accounts (IRAs) are insured up to $250,000. If you go to the FDIC website, there is a deposit insurance calculator on the site that people can use to make sure that their money is fully insured. The FDIC has a perfect track record on that score. I don’t make predictions, but based on the information we have more than 99% of all banks are well capitalized.

Q: How many small banks are in danger of failing?

A: There are 76 banks on the troubled-bank list, and most of those will be nursed back to health or be acquired by stronger institutions rather than fail. Plus, those 76 banks represent $22 billion in assets out of $13 trillion overall. That number could go up, but we would still be well within historical norms and far below the number we’ve seen in other troubled times. To put things in perspective, there were 1,500 banks on the troubled bank list in 1990.

She also offers some general banking advice:

Q: What are the most important questions to ask if you open a savings or checking account or CD?

A: Assuming your deposit is less than $100,000 and you’re fully insured, you want to ask about the interest rate you’ll get on your account. You want to know about absolutely all fees, including transaction fees and minimum balance penalties. You also need to be very careful about overdraft protection. Some customers routinely use it as a source of credit when they are short on money, and this is an expensive option. If you pay a $35 overdraft charge because you just went over your limit by $20, you’ve paid a very high interest rate on your loan.

Overdraft protection as credit? Noooooo.

US regulator: Your bank deposits are safe [Fortune](Thanks, Matthew!)

Comments

Edit Your Comment

  1. speedwell (propagandist and secular snarkist) says:

    Sure, don’t worry about a thing! The insurance companies who cover the FDIC insurance can’t ever run out of money paying claims! Just run along, dear, and trust the government… we’re here to help!

  2. socalrob of the 24 and a half century says:

    What about money market funds? I have an investment account with wamu under their wamu financial wing. It’s under 100k of course. It’s the same interest rate as their current savings acct’s, but it just makes it easier to buy stocks, along with its not tied to my checking acct there. So if I need money from it, I cant just transfer it over, I have to call up and have them make a deposit, which takes ~36 hours.

  3. speedwell (propagandist and secular snarkist) says:

    @socalrob: Money market “accounts” are covered. Money market “funds” are NOT covered. Check with your banker.

  4. RandoX says:

    And when the government fails? Oh well. I guess we’ll have bigger problems by then. I’m off to stock up on ammunition and dehydrated food!

  5. JustAGuy2 says:

    @speedwell:

    The “insurance company” who covers the FDIC is the US Federal Government. A lot safer than any other option, including putting the money in gold in a hole in the ground.

  6. speedwell (propagandist and secular snarkist) says:

    @JustAGuy2: Cash in the bank, in the present economy and climate of identity and other frauds, is safer than gold-in-possession? Where did you get your doublespeak degree?

  7. sam says:

    Well, that’s comforting.

  8. Erwos says:

    @speedwell: Anyone can rob your house and steal your gold pretty easily. Banks have much better protections.

  9. Tux the Penguin says:

    @speedwell: Excuse me, but why is gold such as “safe” investment? First, lets assume that the dollar goes to crap and become practically worthless. First, your gold would simply have kept its relative value, so you can cash it in for a bunch of this worthless currency. But lets say you use it to buy groceries (assuming that retailers will accept gold)… what are they going to give you back in change? Oh yeah, dollars.

    Now, lets go even further. Lets assume a total collapse of the US government and all governments worldwide. Money as we know it is now worthless. What makes you think that people will take your shiny rock as payment for their cows or products? Gold is a luxury item only carrying a value because people believe it has value. But in a barter situation, its basically worthless.

  10. JustAGuy2 says:

    @speedwell:

    Absolutely. Gold in possession is subject to getting your house robbed. That’s a much bigger risk than the US Federal Gov’t failing, in which case the risk of getting your house robbed increases exponentially.

  11. nutrigm says:

    Well that’s quite a cheery news to read Monday morning!

  12. DeafChick says:

    Yeah, I know..Netbank comes to mind.

  13. backbroken says:

    And we all know that you can retire quite handsomely on $100,000.

  14. chaintothread says:

    Goldfingerrrrrrrr
    He’s the man, the man with the Midas touch
    A spider’s touch,
    Such a cold finger
    Beckons you to enter his web of sin,
    But don’t go in
    Mister Goldfingerrrrrrrr

  15. ???/??? says:

    As someone who works at a credit union, let me tell you – if your bank is ONLY insured w/ FDIC for up to 100,000, you need to get out immediately.

    Credit Unions are typically insured through NCUA for up to 100,000 and then insured through another, like Excess Share for an additional 250,000.

    Make sure to check how long they’ve been in business. A place like BoA or Commerce is a given that they’ll be safe, but smaller upstarts you may want to be wary of.

  16. stillkarenann says:

    My question is how you can get a hold of this “troubled bank list”.

    Oh yeah, one more. And how long one’s money would be unavailable while the process of reimbursing happens…

  17. stillkarenann says:

    What I want to know is where can I get my hands on this “troubled bank list”.

    That and how long one’s money would be ‘unavailable’ while the process of reimbursing happened.

  18. brennie says:

    Where can I find the list of ‘troubled’ banks? FDIC lists failed banks, but not ‘troubled’ on their website.

  19. Snowblind says:

    @JustAGuy2:
    Yeah, a lot of people don’t pay attention to the alternative.
    Federal government failing means we got MUCH bigger issues than if my savings are gone… like “Did I stock up enough food/medicine/ammo?”

  20. mac-phisto says:

    @speedwell:

    The insurance companies who cover the FDIC insurance can’t ever run out of money paying claims!

    the fdic is an independent agency of the US, so when they say “your money’s insured”, they mean the US is insuring your money against loss. so, technically they can’t ever run out of money b/c they make it.

    the fdic rarely allows banks to fail – it’s much more common to merge them w/ another bank. & huge banks are protected by the “too big to fail” doctrine. if it is determined that a bank’s failure will cause a rippling effect that impacts other institutions, the fed will not allow it to fail (the $30 billion backup of bsc, while unorthodox, falls under this idea).

  21. freshyill says:

    Her “perspective” is kind of useless. There were 1500 troubled banks in 1990. Great, that means nothing. Consider how much consolidation has happened in the last 18 years. Think of all the banks that were around then, that don’t exist now.

    There’s still plenty of trouble to go around, but the trouble is a smaller part of bigger banks. It might mean your money is fine, but it’s not something you can use to say there’s less of a problem.

  22. stillkarenann says:

    @stillkarenann: Hi, I’m from the Department of Redundancy Department.

  23. Shadowman615 says:

    @speedwell: LOL. Who did you learn about gold from? Pat Boone? In a complete economic meltdown gold would likely be just as worthless as any other forms of cash. Historically, societies develop a barter system before anything else.

  24. johnva says:

    @backbroken: You can have more than $100,000 covered by the FDIC…just not in the same financial institution.

  25. speedwell (propagandist and secular snarkist) says:

    @Tux the Penguin: Yeah, I read that Tolstoy fable too. Problem is, all the people in it were, by definition, fools.

    @JustAGuy2: Right. As a victim of identity theft whose bank wasn’t any help in getting things straightened out, but who exercises due diligence in storing precious metals (I didn’t say I stored it at my house, did I), I’ll just take your word for it.

    @Everyone else who thinks gold won’t be useful in an emergency… tell it to the survivors of the Weimar inflation.

  26. mac-phisto says:

    @stillkarenann: go here –> [www.fdic.gov]

    search:
    YEAR: 2007
    ACTION: Order to Cease & Desist
    leave everything else preset

    you will return 76 results. you can read the orders – they’re interesting if you’re into law/banking stuff. basically, these are “orders of last resort”. if the conditions presented in the orders are not met, the fdic either negotiates a merger or revokes their charter (& that is officially when the bank “fails”).

  27. @brennie: Publishing that list would quickly turn the “troubled” banks into “failed” ones.

    @freshyill: I’ve sent a memo to the FDIC chair informing her that she doesn’t know she’s talking about. You start tomorrow.

    @Shadowman615: Presumably the anarchic period would be fleeting. Gold would work again on the other side; but the Benjamins, not so much.

    It sounds like you’re saying “Banks and gold are for fools. I’m investing in stuff I bought from Best Buy. That’ll be the real currency in the coming apocalypse.”

  28. johnva says:

    @socalrob: A money market “fund” is not insured, normally. While they are still probably pretty safe, you should always try to understand what you are investing in (as with any investment). Some money market funds have invested in riskier stuff than others, which might pose some risk in an environment like we are currently in. Read the prospectus, and think twice about MMF’s that have invested in paper that’s highly affected by the current credit crisis.

  29. @mac-phisto: It’s interesting that it returns 76. But a bunch of those results say “ORDER TERMINATING ORDER TO CEASE AND DESIST”. And if you add in 2008, there are 80 results.

  30. Nothing to see here, move along now and buy another big mouth billy bass.

    When someone takes the time to point out that something is not a problem, chances are it is.

  31. backbroken says:

    @johnva: I was aware, but a good point to make nonetheless.

    I’ve got everything invested in unopened Star Wars action figures, so color me unconcerned.

  32. @mac-phisto: My field has nothing to do with finance, so I don’t really know what I’m talking about here. You may be right. But to a layman like me, this sounds like the answer to the “Where can I find that list?” question:

    The FDIC never releases its ratings on the safety and soundness of banks and thrift institutions to the public. However, there are private companies that provide their own ratings of these institutions. [www.fdic.gov]

  33. mac-phisto says:

    @Michael Belisle: that’s correct. in my opinion, this is what ms. blair is referring to when she says “watch list”, though it is a highly inaccurate determination of troubled banks.

    typically, a c&d order only occurs after examiners have made repeated recommendations that have not been met, so a bank that has just become troubled will not have have received one of these. i don’t believe these recommendations are searchable b/c they are “unofficial”. they are only escalated to the “official” state when the remedies requested are not fulfilled.

  34. ElizabethD says:

    Hmmm. Maybe it’s time to do like Grandpa, and hide the money under the mattress.

  35. TMC1980 says:

    What they arn’t telling you is, the FDIC has 99 years to pay you the money.

  36. johnva says:

    @TMC1980: In practice, the FDIC gets the money to account holders somehow almost instantly these days (often by arranging for another bank to take over the accounts).

  37. Blueskylaw says:

    @chaintothread:
    Do you expect me to talk?
    No Mister Bond, I expect you to die!!

  38. Blueskylaw says:

    .

  39. fhic says:

    @TMC1980: “What they arn’t telling you is, the FDIC has 99 years to pay you the money.”

    When SouthWest bank failed in 1999, it took less than two weeks from the day they closed their doors until I had an active account at BofA.

  40. Anonymous says:

    Don’t forget that the NCUA insures credit union deposits up to $100,000 as well.

    [webapps.ncua.gov]

    They average 3 day payouts.

  41. mac-phisto says:

    @Michael Belisle: we’re both right, in a way. as your quote states, the fdic will never “rate” the soundness of a bank. however, banks are publicly traded companies & insured by federal dollars. therefore, they must report their financial condition to the public (known as a “call report”). that information can be found here –> [cdr.ffiec.gov]

    unfortunately, unless you are a bean counter, it’s pretty hard to extrapolate any useable data from that information. if you know what to look for, though, you can pretty much determine the “soundness” of an institution by reviewing historical data & looking for key factors. it’s not as thorough as the CAMELS method used by examiners (read about CAMELS here –> [www.frbsf.org]), but frankly, examiners have access to data that even most higher level managers within a company can’t review, so don’t expect that information to become public.

    i provided the search for the cease & desist order b/c i know the severity of that measure. a bank with a c&d on file is most certainly on an fdic “watch list”. they don’t just dole those out left & right. you have to be extra special to get one of those!

  42. Shadowman615 says:

    @Michael Belisle: No, what I’m saying is to not bother investing in *anything* solely because of it’s possible value in the event of some apocalypse. I’m saying to make smart investments that have a good chance of making a decent return in our current economic system.

    And if you’re really intent on planning for some apocalypse, I’m just saying that you can’t really be sure about the value of anything. So in both instances, investing in gold doesn’t make much sense.

  43. johnva says:

    @mac-phisto: How good are the Bankrate.com “star ratings” of banks’ soundness? That’s one of the only places I know of that you can go and view a rated list for free.

  44. AD8BC says:

    If this worries you, it should. Even if the FDIC insures your money (up to $100K/person/bank, etc), and you will eventually get it back, it may not be quick.

    Spread out your savings over two, three, or four banks… at least you will have cash while you are waiting.

  45. mac-phisto says:

    @johnva: to be perfectly honest, i’ve never used it. it seems like a fairly good place to retrieve information – just bear in mind that their CAEL & star rating appears to be based entirely on call reports. they’re doing the “bean counting” i refer to above.

    there’s a wealth of information in balance sheets & from the 1/2 hour i spent playing around with it, they do a pretty decent job of translating the raw dat into layman’s terms. i wouldn’t rely on it 100% though. their data is about 1-2 quarters behind & they don’t review as much data as bank examiners. in terms of predicting bank failures, i don’t think bankrate is going to be too accurate.

    fun tool though. i’m gonna go play some more…

  46. johnva says:

    @mac-phisto: That’s about what I figured. I guess it’s good for a rough guide, anyway. I’ve noticed that a LOT of banks have had their ratings on there fall dramatically in the last few months.

  47. jtheletter says:

    @Tux the Penguin: Now, lets go even further. Lets assume a total collapse of the US government and all governments worldwide. Money as we know it is now worthless. What makes you think that people will take your shiny rock as payment for their cows or products?
    Um, maybe the fact that gold has been accepted almost universally as a currency for thousands of years? Even [gasp] before the advent of fiat money. Granted, if you’re in a barter-for-survival situation it’s useless, but a total global economic collapse in which ALL currencies become worthless? Short of a global extinction event that’s about the most unlikely situation. Even if the US dollar fails and the whole world has a recession there will be some other currency to convert your gold into that won’t be entirely worthless. And as for getting change back from your gold coins, go read about the origins of the term “pieces of eight”. History holds lessons for those who would learn them.

  48. nardo218 says:

    What’re the 76 banks in trouble?!?1

  49. shortergirl06 says:

    So, what happens after a bank goes under? Does the money get returned to the customer in a giant check to transfer to another bank? Or is the account bought up by a larger national bank?

  50. JustAGuy2 says:

    @speedwell:

    Aha, not at your house, eh? Well, glad its in a vault somewhere. I’m sure that whomever is guarding it will let you come and get it. He’d never consider, oh, keeping it for himself, eh?

    Listen, go ahead, have your net worth tied up in gold. You’re poorer because of it, but that’s your call.

  51. JustAGuy2 says:

    @shortergirl06:

    Usually the latter – FDIC arranges to have solvent bank X take over the accounts of insolvent bank Y and writes X a check to make up the difference.

  52. spamtasticus says:

    Hmmm.. I wonder who will win this round of “make the banks fail and buy them up”.

  53. speedwell (propagandist and secular snarkist) says:

    @JustAGuy2: You don’t know much and you’re just trying to obscure the issue. I’m not going to tell you where I keep it just to score points off you on the Internet. Just realize that whatever you say about someone holding gold for you (and yes, there are professional vaults that do this) goes double for the bank, who in fact does pool your money to use as its investment capital. Professional vaults rise and fall on their reputation. You retain title to the actual physical coins or bullion, unlike bank money, that is technically the bank’s until you request it back. And maybe not even then. If the bank decides you owe someone money, they do not have to go through any legal formalities to hold your money or give it directly to them. This is the way the law works right now.

  54. JustAGuy2 says:

    @speedwell:

    Well, whatever floats your boat. Just remember, if the point comes when that gold is really the only currency with “value,” the vault has physical possession, so you better have more friends and guns than they do if you want to get it back.

    Personally, I prefer to have my investments appreciate over time rather than gather dust. Your mileage may vary.

  55. savanteous says:

    i used to work at the FDIC and had to answer a lot of these questions every single day, often at great painful length. i’ll address 3 of the most commonly asked questions, which have conveniently been addressed here.

    FYI, mac-phisto knows what he’s talking about.

    i’d urge you to call 1.800.ASK.FDIC and ask them these questions. that’s what they’re there for.

    @brennie: “Where can I find the list of ‘troubled’ banks? FDIC lists failed banks, but not ‘troubled’ on their website.’

    * there is no such list.

    @TMC1980 : “What they arn’t telling you is, the FDIC has 99 years to pay you the money.”

    * this is a common exageration based on the fact that there is no defined timeline to pay back depositors. so by this technical definition, the FDIC has a million gazillion years to pay you back. but that’s not the case. historically, bank customers have received 100% of their insured deposits within a business week of the bank’s failure.

    @johnva:@backbroken: “You can have more than $100,000 covered by the FDIC…just not in the same financial institution.”

    * actually, the FDIC determines the amount of deposit insurance based on ownership categories. it is possible for someone to have more than $100K insured at a single institution (ex: 100K for deposits in single accounts [one owner], 100K per owner’s portions for deposits in joint accounts [more than one owner]). a man and a woman with 2 kids and a combination of single, joint and POD informal trusts could have up to $800K insured at a single institution. it all depends on how you set up & title your accounts.