Depositors want all their money guaranteed. LOL
11 replies (most recent on top)
OP implies a ratio here that is misleadingly big here. Instead of comparing the FDIC insurance fund to the total deposits, it seems like it would make more sense to compare it to the difference between the total deposits and the total liquidity of all the institutions holding deposits, no? Obviously this is still bigger than the size of the insurance, but not by nearly the 144:1 ratio the OP implies.
Ultimately, the FDIC only would need enough in the fund to fully guarantee however many deposits it takes to forestall a few bank runs/failures from turning into an all-out blitz of attempted withdrawals that consumes the entire liquidity of all the banks combined, at least until the point where the fund can once again be withdrawn.
If the worse-case scenario described were to happen, at that point bank runs to that extent would mostly be a self-fulfilling prophesy due to everyone in the country panicking at once (a la 1929). I think fully insuring a few bank failures does more to prevent that domino effect than allowing corporations to lose all but 250k of their payroll accounts. They have to stop the panic or else it just means more deposits they’ll have to try cover. If all the dominos fall they can’t insure every depositor in the country for 250k either.
An IRA in a bank savings account or CD is a deposit account not an investment account. And Insurance is not by account type. Google it and get the right answers out there people. So many posts so little knowledge.
An IRA isn't a deposit account. It is an investment account.
@aht, no it is per account owner and account type. There is ONE owner even if it belonged to a dozen people.
Thanks guys. I didn't realize that it was per account type. But that doesn't help if you have a >500K IRA. Can I split an IRA or the 401K?
So if there is a run on these depressed banks (thats a big if) then the FDIC insurance could be put in distress). Plenty of uninsured deposit studies out there. And there hasn't been any stress since 2008.
I don't follow politics much. I don't think risk is a political thing.
I see the next crisis is in the BREITS... Can't wait for Blackstone....
In the meantime I guess I'll follow the cnbc FOMO and invest in MAGMA...
Nobody seems to be talking about the FDIC Insurance correctly. It is per depositor per ownership category of $250k in coverage. So, my wife and I have accounts at XYZ Bank. She is covered for $250k on her sole ownership accts. I am covered for $250k on my sole ownership accts. We are covered for $500k on our joint accts and we are each covered for $250k on our IRA accts. Thats a total of $1.5 million of coverage for us PER BANK.
If we put money into joint accts with our children then another $250k of coverage each joint relationship. If we have trust accounts, they are covered for $1.25 million separately. So properly structuring your accounts gets much more coverage anyway. It's not individuals that the government is worried about it was commercial businesses with tens or hundreds of million in deposits. I am amazed to hear conservatives criticize the move to cover all deposits when it was done for their businesses that they bend over backwards for.
OP, although it’s a valid argument, each customer can be covered by more than $250k. Some investors simply have too much to possibly divvy out their assets to multiple financial institutions and be fully covered. That’s the entire reason for investing.
Yes, that is how it works. When any insurance co is “tapped out” they are insured and it rolls. One clarifying point from the last post, customers do not literally pay for coverage. We do. Yet, that’s correct it is made up for via rates, etc., as you point out. I think the Fed is ultimately who would “share the risk.” That’s why it’s up to them when any bank proposes to step in.
Great question. The way I would describe this is that the FDIC plays the role of the reinsurance companies, and consumers pay for FDIC insurance in the form of accepting lower interest rates as opposed to other risk free options (fixed annuities through insurance companies, government back money markets)
I am a tech guy... I have a question for the financial folks here...
Its about the FDIC deposit insurance. OK the purpose of insurance is to transfer and share risk. Direct insurers sell homeowner, auto, health, and life insurance policies to the customer. Depositors don't have to purchase this insurance when they open an account. Can we consider the FDIC as the direct or "ceding" insurer? Like Allstate or Prudential?
Now regular "direct" insurers have reinsurers to go to for their own coverage. They go to Lloyd's and Berkshire Hathaway. Does the FDIC have a reinsurer to go to?
It's 90% bits in cyberspace, anyway.