…More Banks Could Fail

I feel an urgent need to bring some very important information to your immediate attention. I’m sure you’ve heard about the troubles with FannieMae and FreddieMac, and then the IndyMac Bank failure, but look at these other recent headlines.

Market Watch: “At least 150 banks will fail in the U.S. during the next two to three years” http://www.marketwatch.com/news/story/weekend-edition-bank-failures-surge/story.aspx?guid=%7B2FCA4A0C-227D-48FE-B42C-8DDF75D838DA%7D

Investor Business Daily: “The Federal Deposit Insurance Corp. anticipates as many as 150 bank failures in the next few years…” http://www.investors.com/editorial/IBDArticles.asp?artsec=27&issue=20080702

Reuters: More than 300 banks could fail in the next three years, said RBC Capital Markets analyst Gerard Cassidy…” http://www.reuters.com/article/ousiv/idUSN1336701420080713

AOL Money and Finance: “FDIC chair says more banks could fail”

“… 90 were in trouble in the first quarter. The FDIC does not disclose the banks’ names.”

http://money.aol.com/news/articles/_a/bbdp/fdic-chair-says-more-banks-may-fail/95264

I found it unsettling when I read the FDIC website: “The FDIC receives no Congressional appropriations… With an insurance fund totaling more than $49 billion*, the FDIC insures more than $3 trillion *of deposits….”

Isn’t $49 billion divided by $3 trillion = $0.01633? Does this means that there is only a little more than 1.5 CENTS for every dollar we have on deposit?

“Savings, checking and other deposit accounts, when combined*, are generally insured to $100,000 per depositor in each bank*… Deposits held in… single or joint accounts – may* be separately insured. …separate coverage for retirement accounts, such as… IRAs and Keoghs, insured up to $250,000.”

(*Bold added) http://www.fdic.gov/about/learn/symbol/index.html

I don’t like terms such as “combined”, “may be” or “generally” when we’re talking about a family’s life savings, do you?

What happens when several banks fail within a short period of time? How long does it take to receive a claim from the FDIC? How are claims paid, in a lump sum or installments over time? If it’s installments over how long of a time, months, years, decades? What if claims exceed the $49 billion in reserve?

What about the SIPC, investment accounts insured to $500,000 right? Well “kinda-sorta”…

http://www.sipc.org “It is important to recognize that SIPC does not work the same way as the Federal Deposit Insurance Corporation in terms of blanket protection of losses…”

Under the heading “Why We Are NOT the FDIC” they write this: “It is important to understand that SIPC is not the securities world equivalent of FDIC–the Federal Deposit Insurance Corporation.” …a reserve of slightly more than $1 billion, SIPC could not keep its doors open for long if its purpose was to compensate all victims in the event of loss…

SIPC acts as trustee or works with an independent court-appointed trustee… …SIPC provides that customers of a failed brokerage firm receive all non-negotiable securities - such as stocks or bonds — that are already registered … or in the process of being registered. …funds from the SIPC reserve are available to satisfy the remaining claims…to a maximum of $500,000. This includes a maximum of $100,000 on claims for cash.”

So is there a safe place to hold our balances? You bet there is, and it is where Fed Chairman Ben Bernanke keeps the largest portion of his personal wealth!

There are financial corporations required by the Legal Reserve System to keep one dollar in reserve for every one dollar on deposit, although it may vary from state to state. Those reserve requirements give these companies a very high degree of stability and provides safety-first citizens a very high level of peace of mind.

Because of the massive reserves of these institutions, best selling author Dr. Gordon K. Williamson, JD, MBA, MSFS, CFS, CAS, BCE, BCS, BCAA, CEPP, AEP points out that during the Great Depression, it was not the U.S. Government that bailed out the banking industry – it was these private companies. If there were ever a financial collapse in the United States, this industry will be the second to the last entity to fold (second only to the US government). This ’second billing’ is because the US government has taxing power and, of course, the ability to print money.”

Through devastating world wars, recessions and depressions, inflation and deflation, one industry has protected people to a degree unmatched by any type of financial institution in the history of the world.

Wait and see vs. take action NOW! Which makes most sense? I’m not going to wait to find out what happens!