US Muses Backing All Deposits, No Deposit-Insurance Ceiling

In order to stem the tide of panic-stricken morons taking out all their cash from banks and further destabilizing the financial system, the US is considering a proposal to completely back ALL deposits. This would mean that there would be no deposit insurance ceiling. So even if you had more than $100,000 in the bank, even if you had $1,000,000 in the bank, the government would give you back ALL of that money if your bank failed. The proposal is only in discussions right now, and several different agencies would have to agree that there was “systemic risk” in order to enact it. Europe has already guaranteed all deposits, however, and in order to keep large corporate accounts from emigrating overseas, the US may be forced to follow suit within a few weeks.

[via WSJ]

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  1. And I mean, thank GOD, because all those innocent victims with more than $250,000 in a single bank account — they NEEDED the help, and FAST!

    …Ow, my cynicism stretched and it hurt.

  2. SkokieGuy says:

    Does everyone remember the ‘bailout’ package that passed included an increase to $250,000 to quell depositor fears and prevent a bank run?

    What you didn’t hear was that it expires December 31st, 2009!!!!!!

    So if people do consolidate accounts because of higher limits, in just over a year, there will be either:

    A panic as people rush to withdraw and move money before the limits decrease.
    A huge risk if people don’t move money and more banks fail

    Basically, this portion of the bailout defered potential bank panic till another administration is in charge.

    [www.fdic.gov]

    • chauncy that billups says:

      @SkokieGuy: I think that expiration date was created in the assumption that the crisis would be over by then. At this point, I think that was faulty.

    • Skankingmike says:

      @SkokieGuy: Which is why it doesn’t matter who wins this election we’re gonna have a crappy economy and blame it on whoever wins.

    • ameyer says:

      @SkokieGuy: As I understand it, if they were to permanently increase FDIC coverage, FDIC premiums would go up. As I understand it, they intend to make it permanent in the next Congress, and they did it this way so that banks would have time to prepare for higher premiums.

    • socalrob of the 24 and a half century says:

      @SkokieGuy:
      Didn’t Bush say though that its a slow and temporary fix? Meaning its not going to fix things in 2 days but a few months, and and its not guarenteed to fix anything, just kind of help things out a bit?

  3. Kimaroo - 100% Pure Natural Kitteh says:

    It sounds like a nice idea to back all deposits everywhere.. but is that even realistically possible?

    • nidolke says:

      @Kimaroo: It *should* be. Why should my money just vanish? Granted I don’t have over $100K…but still..

      • lukobe says:

        @nidolke: Of course it’s not possible. The government doesn’t have enough money to pay everyone back if, say, Bank of America, Wells Fargo, Citibank, and Chase simultaneously went down. To pay everyone they’d have to print money. Up goes inflation. Everyone loses.

  4. Sigh. I suppose if corporate deposits are going to flee overseas, it makes sense. But I don’t have to like it.

  5. Parting says:

    Well, more debt to pay by your grandchildren…

    If you’re stupid enough, holding more that 100K in one account, then you deserve losing it, if your bank collapses.

    I don’t see why middle class is supposed to pay for stupid rich people, with its taxes.

    • JustThatGuy3 says:

      @Victo:

      The middle class doesn’t really pay much in the way of income taxes. The bottom 75% of earners pay <14% of total income taxes, while the top 1% of earners pay 40% of income taxes. In fact, about 1/3 of US households pay no income tax at all.

      • kingmanic says:

        @JustThatGuy3:
        Some citations

        breakdown by state and sector
        [www.taxpolicycenter.org]

        re-enforcing your statement but also giving some context
        [findarticles.com]

        Income breakdown (Also re-enforcing the idea that the educated pay more)
        [en.wikipedia.org]

        • JustThatGuy3 says:

          @kingmanic:

          Yeah, I should have noted, to be complete:

          1. that the picture isn’t quite as distorted when you include Social Security taxes, which effectively charge a higher rate on lower-income earners

          2. the top income brackets make a large portion of the income as well.

          Still, bottom line, if tax $ are going into insuring deposits, then, if there’s any transfer going on at all, it’s from people with high income/low net worth to people with low income/high net worth.

    • Trai_Dep says:

      @Victo: THANK you.
      In America, you have responsibility for handling yourself.
      If you have more than o̶n̶e̶ two-hundred-fifty thousand dollars e̶a̶r̶n̶i̶n̶g̶ losing money in a savings account, you have the responsibility to spread it across two banks.
      On the off-chance that one of them goes under.
      Jeezus: personal responsibility, people.

      • jamar0303 says:

        @Trai_Dep: Yes. Unless you’re Icelandic, in which case you could have your money in 3 banks or more and still be screwed (Kaupthing, Landsbanki/Icesave/Heritable, and Glitnir, not to mention the rest of the country).

        • jamar0303 says:

          @jamar0303: crap, need to learn to read better. Well, for Americans I guess that doesn’t apply. I meant to say that it’s good to have something like this because spreading your money alone doesn’t fully protect you if an Iceland-like situation happens (if America becomes the next Iceland it’s all over).

      • bunt says:

        @Trai_Dep: its easy to say “ok, look at all those poor rich people. screw em cause they’re rich!” but realistically they do make a big portion of bank’s money. plus, while it may not be smart to keep all that money in a bank, cash is meant to be liquid.

        • Trai_Dep says:

          @bunt: But I’m not saying people with large amts of cash should be punished. Far from it. Just that if you’re (presumably) smart enough to be in that situation, you’re (presumably) smart enough to spread your nest egg across several banks. Simple diversification. It’s better for the depositor and for the system as a whole.
          If you don’t care enough about your money to do this simple thing, then it’s not the role of the gov’t to clean up for that person’s ignorance. That’s all.

  6. SkokieGuy says:

    Kimaroo, The FDIC says: “FDIC deposit insurance is backed by the full faith and credit of the United States government”.

    And we know how much that is worth these days.

  7. sleze69 says:

    Comrads…it is a glorious day in the Fatherland!

  8. ValerianFlorus says:

    > Europe has already guaranteed all deposits,
    No, Europe has not. Some countries in the EU have ( Germany and Ireland). All the others have agreed to at least guarantee o 50K EUR (also allowed to have a 100K EUR limit if the country can afford it.)

  9. MrDo says:

    don’t you mean china?

    • jamar0303 says:

      @MrDo: I’m actually here right now; rumors are flying around that the interest rate here will drop to 0% sooner or later…

  10. Rectilinear Propagation says:

    If the panic-stricken morons are panic-stricken morons then this isn’t going to stop them from yanking all of their money out of the bank. Five bucks says many of the people withdrawing their money didn’t have more than the $100,000 limit anyway.

    I think the government needs to stop trying to do stuff, at least in the short term. They can’t do anything that would make the stock market rebound immediately, which is what they’re trying to do. They need to wait and see if their bailout actually works. Frankly, all the new stuff is just panic. They can’t berate us for being afraid and panicking when they’re doing the same thing.

    • Princess Leela says:

      @Rectilinear Propagation: Why don’t they put Bernanke on national TV? Address to the nation? Everyone knows nothing Dubya says at this point is going to make a damn difference, and Paulson is too tainted by the Goldman association, but can’t Bernanke serve as a stabilizing, knowledgeable presence? All we need is five minutes: “Folks, your money is safe in banks, the FDIC and the Federal Reserve are here to make sure of that, please do not keep it in a shoebox, kthxbai.”

    • chauncy that billups says:

      @Rectilinear Propagation: It is true that anyone pulling money out of a bank and physically putting it in a shoebox or ‘mattress’ is a moron. IF the FDIC has guaranteed the account, that means that if they have to, they will PRINT more money and give it to you. That causes problems for inflation, but hey, that will affect your money whether you have it in the bank or under your mattress. a lot of economists are now saying the US needs to backstop ALL deposits, and only then will the LIBOR and other rates ease up.

  11. ARP says:

    I think $250k is fine, max at $500k. More than that, it would cost a lot of money and doesn’t add much as far as confidence in the market as most (rich or poor) don’t have that much money in a single account.

  12. nidolke says:

    So if everyone wanted to use their physical money, the whole system would collapse. Shouldn’t that mean the system needs a fixin’?

    • JustThatGuy3 says:

      @nidolke:

      No, it just means that we don’t live in the 15th century.

    • mwshook says:

      @nidolke: And what is physical money anyway? Fancy pieces of paper? What if people wanted their gold? We haven’t had a gold standard in generations. What is gold anyway? Just a shiny metal. There’s so many layers of abstraction that I’ve lost track. I’m going to take a cue from this guy and put my money in bicycles: the ultimate post-apocalyptic commodity.

  13. coan_net says:

    I see many commenting about how if someone has more the $100,000 (or $250,000) in an account – then who cares about them.

    But that is one of the issues. The people (and companies) who do have more then that are now running to the banks and taking out their extra money – leaving the banks with less cash to work with – and in turn, causing banks to get into trouble and possible collapse.

    So yes – this is a good thing for everyone.

  14. Colage says:

    This is effectively how it is already, between the fact that people who have a lot of cash assets tend to keep them in several different places in the first place. And even if they were over, the dollar limit was the minimum guaranteed, not the maximum. Most people who were over the $100k for IndyMac got at least some portion of the excess back from the FDIC.

    As far as “Well, if someone has more than $100/250/whatever thousand dollars, screw them…” – that’s all well and good for people who have time to juggle their finances or hire people to do it for them, but in most cases these are corporations that we’re talking about who may be moving lots of cash – it’s too much of a burden to make sure cash accounts are under some limit for fear of a bank collapse.

    Point is this: Don’t make assumptions about the intelligence of others just because you don’t have $250k in a bank account.

  15. sspeedracer says:

    “panic-stricken morons taking out all their cash from banks”

    Only a moron would rely on the USD maintaining its value.

    Knock Knock….
    Who’s There?
    Hyper Inflation, Moron.

    Thank you Fed, Treasury, Congress, Pres.

  16. Snarkysnake says:

    The panic stricken morons are simply acting like they don’t trust anyone right now. Money is a form of inventory (an inventory of wealth), and we all know that inventory is a substitute for certainty. If we could get Bernanke on TV (as one poster suggested),I’m not sure it would do anything unless he was forthright about the root of the problem and told the un-sugarcoated truth about how to fix it. When president pinnochio goes on the tube 4 times in a week and says that everythings ducky and the markets drop by 20-30 %,you would think that some one would tell him to shut the hell up.

    The un-sugarcoated truth is that a great boom was built on quicksand and the bill is now due.I hate it,but there it is.

  17. Why is someone a moron for wanting to ensure that they aren’t going to get wiped out because of irresponsible banks. Its not like these people are taking a bag full of cash home. They’re transferring the funds to a different bank.

  18. AMetamorphosis says:

    Yeah, panic stricken morons …

    I have full faith in our government & our false financial system, don’t you ?

  19. MikeH30 says:

    another bill just to help the rich, the only people this will help are the super ultra rich that keep more then 250,000 in a single bank account

  20. dangermike says:

    Increasing the guaranteed cash amount seems like a very bad idea. It provides a strong incentive to completely bail on any declining investments, causing the investment to decline further, causing more people to ditch them, causing them to decline further, etc., ad infinitum.

  21. reverendskinner says:

    Sure, why not? We’ve dug this deep a deficit hole already, might as well go for broke.

    Why don’t we give free insurance on all stock investments too, while we’re at it.

  22. flamincheney says:

    Another Band-Aid on a bazooka wound.

  23. krom says:

    Wouldn’t such a move have a really high risk of turn the US Dollar into the Peso?

  24. loueloui says:

    Right. We need a plan like this in place in case all of these banks go and lose their $700,000,000,000 vacation money we can replace it for them again.

    Actually there is a program for large depositors run by the Fed called CDARS. Basically it spreads out deposits among a network of very large banks to reduce risk of loss. This actually worked very well until a short time ago.

    This really is an empty promise though. Most people will never have $100,000 in their account at one time except under unusual circumstances, (i.e. buying or selling a house or business, inheritance, retiring etc). The exception is for retirement accounts which is already $250,000. Most people with a large amount of wealth would have their money in a brokerage account which is not FDIC insured anyway.

  25. Trencher93 says:

    For the love of fiat currency — if people want their fiat currency out of banks because it’s worthless, what is the government going to give them that’s worth something? The banks are already getting government money to cover their losses — if that’s not good enough, what is the FDIC going to use? Racoon skins?