Wednesday, December 19, 2018

As The Economy Begins to Weaken, Here is One Big Thing You Need to Know

FDIC deposit insurance covers the depositors of a failed FDIC-insured depository institution dollar-for-dollar, principal plus any interest accrued or due to the depositor, through the date of default, only up to $250,000.

If you have more than that in one account and the bank fails, you could be in serious trouble.


It would be wise to set up multiple accounts at multiple banks now to get under the per account protection limit.

At the EPJ Daily Alert, I always advise readers to place funds with the top crony banks such as  Citibank, Chase Manhattan, etc. These are the ones that are most likely to be most protected by the government (even if the Federal Reserve has to print up money to do it--which is pretty much what they did in 2008).

But here is something else you can do if for some reason you have funds in a bank over the $250,000 coverage limit and a crash is in its intense phase.

The Bloomberg financial writer John Authers did it in 2008 (He was then writing for the Financial Times).

David Warsh explains:
It had occurred on Wednesday, September 17, two days after Lehman Brother declared bankruptcy, the scariest day of the crisis, both for Authers, and, to judge from his memoir, for Federal Reserve chairman Ben Bernanke as well.  The insurance giant AIG had received an $85 billion government loan the day before. The Reserve Fund, the nation’s largest money market fund, had seen its redemption value dip below $1, thanks to its losses on Lehman bonds. A high rate of withdrawals had begun.

Authers, as it happened, had sold his flat in London not long before.  The proceeds were deposited in Citibank, far more than would be covered by government insurance if Citi failed.  He went to the bank, intending to withdraw half his money and carry the cash to a rival bank.  He found himself standing in a long line. The bank officer he finally reached told him he didn’t need to withdraw his funds in order to protect them.  She quickly opened trust accounts for each of his children and a joint account with his wife.

Presto, Authers was insured by the government for the full amount of his deposit. The maneuver had been going on all morning, the officer explained, and the same at Chase bank next door. Neither she nor her competitor had ever performed a single such transaction previously. That day they had undertaken many.
It's better to have your money spread out and in various banks but if for some reason you have more than $250,000 at peak crisis, you now know what to do.

I would bookmark this page and also print it out and file it.

-RW 

1 comment:

  1. " I always advise readers to place funds with the top crony banks such as Citibank, Chase Manhattan, etc. These are the ones that are most likely to be most protected by the government (even if the Federal Reserve has to print up money to do it--which is pretty much what they did in 2008)."

    Further to the point above, I recall Greenspan back in his day commenting on the deposit insurance concept. To assuage law makers' concerns that there isn't enough "money" held in reserve to guarantee deposits, Greenspan said the Federal Reserve would create the "money" if ever needed. Astonished law makers, (who apparently knew nothing about modern fiat money mechanics), asked him if he could create an amount conceivable large enough to satisfy such a requirement. To paraphrase the financial wizard: "I can create as much as is needed or even more. What I can't guarantee is your purchasing power."

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