Know your FDIC/NCUA limits and dont cause Bank Runs (Pics linked)

We are already seeing panic threads, from those with

$5,000 in the bank
http://www.fatwallet.com/forums/finance/844040?newest=1#last

to those with $90,000 in the bank
http://www.fatwallet.com/forums/finance/844129/

PLEASE educate yourself on FDIC and NCUA coverage, and do not post new threads asking whether every amount and every bank out there is "safe".

Preaching to the choir... I hope! In light of the above threads, perhaps not. Perhaps Schumer should be reading this, too.

This is an honest question that I'm not even sure could happen, but...what happens if FDIC's $53 billion allocation for insuring banks gets used up by 5 or more of the largest banks failing? First IndyMac, next could be Wachovia? and maybe some of the smaller banks, too? Thanks for this discussion.

glxpass said: Preaching to the choir.I agree and although the sentiment of this thread is noble, FW is far too small a crowd to make much of a difference. If you're lucky, this thread will get 5,000 views which maybe equates to about a couple thousand different people, but probably less than 1,000. Of those couple thousand, most FWFers are already knowledgeable about these rules.

Now, if the mainstream media tries to educate people....

Here's a reasonable question I got on my mind.

Lets say a bank with 20b on deposit fails. It has 19b in insured deposits and 1b in uninsured (over the limit, etc). OTS sees that the bank has only 19.5bil in assets and shuts it down.

Wouldn't this mean that the bank has assets to cover the 19b in insured deposits, plus about 500 million leftover to cover half of those deposits over insurance limit? Those people with uninsured funds would get half of their money, and FDIC reserves end up untouched.

I know I am simplifying as there are plenty of other costs, such as salaries for temporary staff, all kinds of organizational expenses to set things up, etc.

If FDIC is saying their cost of this failure will be 4-8b, wouldn't that mean that the bank has only about 19 minus (4-8) = 11-14 billion of assets? If so, why would those who are uninsured get anything, such as 50% advanced dividend being given out?

I tried to research this and look at FDIC historical payouts and assets but ran out of lunch time

Can someone actually explain the nitty gritty of a bank failure.

lets say you're smart, did your homework, and have a max of $100K in IndyMac today. The bank failed last week and you can't access your funds at this time.

1. what happens to interest? FDIC articles say "PRINCIPLE" is protected.

2. what happens during the interim, do you continue to earn interest

3. does nothing change, and one day the bank gets renamed and you get a statement from a new instituion?

4. what is the average time it takes to receive funds after a bank failure? Days? Weeks? Months? Some articles suggest up to 90 days.

What is the flow? Does anyone know?

SUCKISSTAPLES points out a good detail about insurance, but what about liquidity? What if you need your money fast? i.e. how and when do you actually get your money back from the FDIC.

lampy2k4 said: Here's a reasonable question I got on my mind.

Lets say a bank with 20b on deposit fails. It has 19b in insured deposits and 1b in uninsured (over the limit, etc). OTS sees that the bank has only 19.5bil in assets and shuts it down.

Wouldn't this mean that the bank has assets to cover the 19b in insured deposits, plus about 500 million leftover to cover half of those deposits over insurance limit? Those people with uninsured funds would get half of their money, and FDIC reserves would be untouched.

I know I am simplifying as there are plenty of other costs, such as salaries for temporary staff, all kinds of organizational expenses to set things up, etc.

If FDIC is saying their cost of this failure would be 4-8b, wouldn't that mean that the bank has only about 19 minus (4-8) = 11-14 billion of assets? If so, why would those who are uninsured get anything, such as 50% advanced dividend being given out?

I tried to research this and look at FDIC historical payouts but ran out of lunch time
I wondered the same yesterday? To my simple mind, if the uninsured get paid 50% right away (with the possibility of more down the road), FDIC should not have to dig into their pocket AT ALL.

lampy2k4 said: sailmaster1955 said: Can someone actually explain the nitty gritty of a bank failure.

lets say you're smart, did your homework, and have a max of $100K in IndyMac today. The bank failed last week and you can't access your funds at this time.

1. what happens to interest? FDIC articles say "PRINCIPLE" is protected.

2. what happens during the interim, do you continue to earn interest

3. does nothing change, and one day the bank gets renamed and you get a statement from a new instituion?

4. what is the average time it takes to receive funds after a bank failure? Days? Weeks? Months? Some articles suggest up to 90 days.

What is the flow? Does anyone know?

SUCKISSTAPLES points out a good detail about insurance, but what about liquidity? What if you need your money fast? i.e. how and when do you actually get your money back from the FDIC.

In a typical case, including IndyMac situation, it's #3 and thus all of your other questions are not relevant.

Ok... what about the timing? How long before your money is liquid and in your hands? Countrywide locked up my money for 10 days when they had a run several months ago and they didn't even fail!

sailmaster1955 said:
Ok... what about the timing? How long before your money is liquid and in your hands? Countrywide locked up my money for 10 days when they had a run several months ago and they didn't even fail!
The bank was closed late Friday afternoon.
All insured deposits were available Monday morning.
All checks and ATM cards still worked as if nothing had happened.
Electronic transfers and billpays are not processed over the weekend anyway and all electronic transfers and billpays scheduled for Monday went through as normal.
The web site was up and running Monday morning.
All insured accounts kept earning interest as usual and are still earning interest.
If your deposits were all within the insurance limits, it's as if nothing had happened.
The people lining up all night outside the bank this week are idiots.

Countrywide Bank had a ten day hold on all incoming transfers initiated through their web site until sometime last year. Then they changed it to a five day hold. The hold is disclosed on their web site and in the Application Disclosure Handbook (page 17) which you acknowledge having read when you submit your application and a copy of which is then also mailed to you. It is not uncommon. Most (but not all) banks have a 3 to 5 day hold on ACH transfers initiated from their web site.

They can run but we can't hide.
Our wallets.
..

I say have a run and take them all down!

Shame on them for being leveraged to such an extent that it is obscene.

ArmchairQB said: I say have a run and take them all down!

Shame on them for being leveraged to such an extent that it is obscene.

YES!!! If we all do the run, we can take a couple of bank down .

Here's an interesting chart for those that keep repeating "FDIC has XX banks on their problem list!" line:

http://www4.fdic.gov/qbp/2008mar/chart8.html

it shows number of banks on that list over time - you'll see that while there is a slight increase in the last year or so, things aren't as bad as they were 5-6 years ago, and way better than early 90s. The amount of deposits at these institutions is extremely low as well.

I was surprised not to see armed guards or police present, hysteria and money dont mix well

samko said: glxpass said: Preaching to the choir.I agree and although the sentiment of this thread is noble, FW is far too small a crowd to make much of a difference. If you're lucky, this thread will get 5,000 views which maybe equates to about a couple thousand different people, but probably less than 1,000. Of those couple thousand, most FWFers are already knowledgeable about these rules.

Now, if the mainstream media tries to educate people....

Guess who reads FW and then rips FW threads into their own articles?

People are watching.

Regarding getting your money and FDIC - if you are under $100K and insured, all is great. If you are over $100K, and insured], which many account holders are, there is a hold on your money. You must then schedule an appointment to speak with a FDIC rep over the phone at which time FDIC will begin the process to confirm your beneficiaries. I have a scheduled appointment for August 1st to commence the process to get the remainder of my money. In addition, an 11 day hold was placed on the check I received on IndyMac - my bank has never placed a hold a check in the past. So, for 11 days, I don't have use of the first $100K and I assume it will be several weeks before the remainder of the money is available.

Fortunately, time isn't an issue for me at this time. However, in the future, I will make it a point to not place more than $100K in any one bank. It isn't worth the aggravation, should anything happen as we have just seen.

I have a friend who works for FDIC and he told me that if a bank fails, the FDIC covers the 1st 100K (or other insured level depending upon account type), but most people over the limit still get most of their money back. The only way to lose all of your money > 100K is for the bank to have REALLY REALLY screwed the pooch.

He said the big downside is that you usually have to wait for the FDIC to clear through the accounts to figure out what you get back (you get your 100K check cut as soon as the bank is closed)

fasttimes said: I have a friend who works for FDIC and he told me that if a bank fails, the FDIC covers the 1st 100K (or other insured level depending upon account type), but most people over the limit still get most of their money back. The only way to lose all of your money > 100K is for the bank to have REALLY REALLY screwed the pooch.

He said the big downside is that you usually have to wait for the FDIC to clear through the accounts to figure out what you get back (you get your 100K check cut as soon as the bank is closed)
It's more than just clearing through the accounts, As the FDIC sells off assets it readjusts the amount of uninsured funds you get back, This can take a long time

Not to quibble, but --

A bank run is what happens BEFORE the bank fails, and is likely the precipating event leading to its closure/takeover.

IndyMac's bank run happened in the 11 days following the release of Sen. Schumer's ill-advised letter to the FDIC, when $1.3b was withdrawn by depositors. It was only then that the OTS was forced to take over the bank.

The queue NOW in front of IndyMac branches isn't a classic bank run, but rather what happens as the RESULT of a bank run.

Also: I wouldn't necessarily call the people in line "idiots," although I think the majority of them are ill-informed. I would also be willing to bet that at least half of those in line will find that their deposits are actually within the insurance limits.