Since when were their money market accounts FDIC insured? Ever heard of "breaking the buck" ?

PolarDude said:Since when were their money market accounts FDIC insured? Ever heard of "breaking the buck" ?

PolarDude, you're thinking of money market FUNDS.

I'm shocked. I figure as long as the stock is trading for a least 10 cents then the bank is 'safe and sound' .

Nervous nellies jumping the gun here.

Also for folks with joint accounts which was opened online. There is no need for signature card on record with the bank. Once you agree the T&C on website then you should be fine..I read this somewhere and just wanted to let everyone know. Please correct me if i am wrong.

The reason I mentioned this is cos in cause of joint titles FDIC checks if title is proper on account and whether the signature card is on file.

Sorry if these were mentioned earlier (all facts taken / quoted from here: http://biz.yahoo.com/rb/080708/indymacbancorp.html?.v=8):

- IndyMac has been experiencing an elevated level of deposit withdrawals since Schumer comments,
- $17.3B of its deposits insured by the FDIC. As a side note, the FDIC is has $52.8B in its insurance fund. For some reason, that does not seem much to me. Imagine what happens if a megabank like CITI fails,
- March 31, 2008 capital ratio was 5.76%. To be adequately capitalized and avoid being subject of tighter regulatory oversight, it needs to have a capital ratio between 4 and 6%. Lately, regulators concluded that IMB was not well capitalized. So we can conclude that their capital ratio has fallen below 4%,
- Fitch lowered IMB's ratings across the board, and concluded that its $720 Million UN-insured deposits have a recovery rating of "average", i.e., 30-50%.

From those numbers, it appears that only a very small percentage of the total deposits are not FDIC insured ( $720 Mill out of about $18 Bill).

If IMB is forced into receivership (i.e., FDIC takes over), then there are two options:

- FDIC might find another bank that is willing to take over IMB. FDIC pays the shortfall to the acquiring bank,
- FDIC can not find another bank that is willing to take over IMB. Then FDIC is effectively taking over IMB's assets and liabilities, and will have to pay out the $17 Billion outright. Let's say the shortfall for each deposited dollar is 20 cents, then FDIC will be out $3.5 Billion dollars. This last calculation is a wild guess on my part.

BTW, here is their balance sheet:

http://finance.yahoo.com/q/bs?s=IMB
It appears that their assets and liabilities were each around $32B as of March 31.

lampy2k4 said:tolamapS said:$17.3B of its deposits insured by the FDIC. As a side note, the FDIC is has $52.8B in its insurance fund. For some reason, that does not seem much to me. Imagine what happens if a megabank like CITI fails.

Bank "failing" by FDIC standards happens way before they start dipping into their deposits and reserves. I would bet that at a typical bank shutdown/failure FDIC actually doesn't spend much out of their insurance fund.

But look at the balance sheet. They have $28B worth of "assets" (these are all probably various kinds of mortgages).

In the liabilities, they are showing:

- Short/Current Long Term Debt, $10.9B
- Other Current Liabilities, $18.9B. These are probably the deposits. The previous item is probably warehouse lines, commercial paper, something like that.

If nobody wants to buy the $28B worth of assets, then FDIC will have to come up with the $17 Billion.

I do have a question. According to this website (detailing NetBank's failure)

http://www.fdic.gov/bank/individual/failed/NetBank.html

the following is the priority of claims:

FDIC said:

VIII. Priority of Claims

In accordance with Federal law, allowed claims will be paid, after administrative expenses, in the following order of priority:

1. Depositors
2. General Unsecured Creditors
3. Subordinated Debt
4. Stockholders

So if the depositors come ahead of all the other claim-holders, why does the FDIC insurance matter?

IMB has close to $32B in assets, but of the liabilities, only $18B are deposits. So for sure, the deposits should be covered even under some really bad circumstances, right?

If anyone can shed light into this matter, I'd greatly appreciate it.

tolamapS said:No, I never said that. But if 3-4 banks the size of IMB fail at the same time, FDIC might have problems.

Allow me to quote FDIC's website here:

"FDIC insurance is backed by the full faith and credit of the United States government."

...and

"FDIC deposit insurance covers the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing."

Trust me, the government never has trouble raising liquidity - not since the dollar stopped being backed by gold. Please see my earlier comments re printing press. Sure, a chain reaction of bank failures is highly undesirable, but the law guarantees that you will get your money back - whatever it takes. It is your right however to take an alternative approach to asset security, e.g. keep your wealth in gold bullions under your bed and a shotgun by the door.

It's complicated and depends on the titling of the accounts. There are seperate buckets for individual, joint, retirement, and trust (x2) accounts.

Figure it out for yourself:

http://www.fdic.gov/edie/

With two individual accounts and one joint account your total coverage is 400K, 100K on each individual account and 200K on the joint. However the joint account holder can't be listed as beneficiary on an individual account without exceeding the limits.

FDIC Calculator

(use the "Walk Me Through" button)