Economists - FDIC?? please explain.

iVillage Member
Registered: 08-27-2001
Economists - FDIC?? please explain.
25
Wed, 11-12-2008 - 10:08pm

It was always my very shallow understanding that the FDIC would prevent US banks from ever crashing the way they did in 1929.


How does it work?

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iVillage Member
Registered: 04-03-2003
Wed, 11-12-2008 - 10:13pm

FDIC merely insures the depositors money up to $100k, not the solvency of the bank itself.

iVillage Member
Registered: 04-02-2008
Wed, 11-12-2008 - 10:15pm
I pretend I'm an economist.
iVillage Member
Registered: 04-02-2008
Wed, 11-12-2008 - 10:16pm
it's 150k now, yeah (the banks don't have that reserve I am betting)
iVillage Member
Registered: 08-20-2008
Wed, 11-12-2008 - 10:16pm
Now it's $250,000.
iVillage Member
Registered: 04-03-2003
Thu, 11-13-2008 - 12:10pm

Couldn't remember if that was part of some of the new proposals or part of the plan already signed into law.

iVillage Member
Registered: 03-19-2003
Thu, 11-13-2008 - 12:18pm

and if I recall it's not 'per account'?

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iVillage Member
Registered: 04-19-2008
Thu, 11-13-2008 - 12:29pm

I have a Masters in Economics but haven't particularly concentrated in banking. However, a traditional bank's profit comes largely from lending the money received by depositors. For example they pay the depositor 3%, lend at 7% and earn the spread. They pay fees to the FDIC to insure their depositors, not to insure the banks themselves. As noted, this coverage has been increased in recent days. They cannot be required to keep 100% reserve as they would have no means of lending money and thus no means of making money. The FDIC does help keep banks healthy through consumer confidence. Consumers know that they are insured up to $250,000 and with that insurance they are less likely to stage a run on the banks. The FDIC also monitors banks health and issues them a rating (not public information). I believe the rating is 1 to 5 with 1 being the safest and 5 being at risk. If the bank becomes seriously at risk they will be put on a watch list. If they begin to falter the FDIC will shut them down and take them over temporarily. We have been seeing the FDIC engineer bank mergers in recent days in order to minimize the FDIC losses and expedite the consolidation of the industry.


Does that answer the question? I'm at work and don't have time for a much more thorough reply.


iVillage Member
Registered: 07-03-2008
Thu, 11-13-2008 - 1:35pm
Well, it had been 100,000 per account. so whether it;s now 250,000 per account, I don't know.
iVillage Member
Registered: 03-19-2003
Thu, 11-13-2008 - 1:39pm

no, not per account


What is the FDIC insurance amount?
The basic insurance amount is $250,000 per depositor, per insured bank. This includes principal and accrued interest up to a total of $250,000. The $250,000 amount applies to all depositors of an insured bank for owners of certain retirement accounts, which are insured up
to $250,000 per owner, per insured bank -->.

Deposits in separate branches of an insured bank are not separately insured. Deposits in one insured bank are insured separately from deposits in another insured bank.

Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $250,000 at one insured bank and still be fully insured. For more information on deposit insurance coverage, see the FDIC’s brochure “Your Insured Deposits” which can be accessed at www.fdic.gov/deposit/deposits/insured

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iVillage Member
Registered: 08-27-2001
Thu, 11-13-2008 - 1:44pm

Thank you for all the explanations.

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