Banking 
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FDIC Asks to Temporarily Increase Deposit Limits

Federal Deposit Insurance Corporation SealFDIC Chairman Sheila Bair has requested that Congress give her agency the authority to raise the $100,000 FDIC insurance limit to some unspecified amount, to be determined by Congress. In 2005, Congress voted to peg that $100,000 limit to inflation but that doesn’t kick in until 2011. Until then the limit stays at $100,000.

Will insurance premiums be raised? I’m not a banking expert or an insurance expert, but I know that if the protection limit is raised then there’s going to be greater pressure on the coffers of the FDIC if and when banks fail. The FDIC doesn’t need that, it’s under enough pressure. :) Unless premiums are increased, you’re putting a greater burden on the shoulder of taxpayers.

Who does this benefit? In all honesty, I think it benefits no one unless FDIC insurance coverage premiums are increased. With the very public failures of WaMu and Wachovia and IndyMac, the average person who reads the newspaper or watches the television is acutely aware of the FDIC limit and likely has been spurred to action. Fortunately for many of those who bank at those institutions, your money was protected even beyond the FDIC limits. (if you haven’t moved your funds around so that you’re under the $100k limit, what are you waiting for? Don’t be like this woman who lost $20k)

For the very wealthy, I assume they have financial advisers who handle all this complicated banking stuff and have them spread across as many banks as they need to be to stay underneath the limit. Raising the limit really doesn’t have an appreciable effect for the consumer (it might reduce the amount of paperwork as the rich will need fewer accounts!).

But then again, personal finance is more about psychology than it is about the math. If this move settles some people’s minds, then it’s a Good Thing.

FDIC asks to boost deposit limits [CNN Money]


 Banking 
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What Happens To CDs After Bank Failure

JPMorgan Chase BranchWith the very public and very large failure of WaMu, you might be wondering what happens to all those nice, fat 12-month 5% APY certificate of deposits you may have recently opened. In the case of WaMu, it appears as though JPMorgan Chase will be honor those CDs to term. If you review the FDIC’s FAQ on the WaMu takeover, “JPMorgan Chase accepted Washington Mutual’s interest bearing accounts including CD’s at the contract rate; therefore, they are not waiving early withdrawal penalties.” That means the CD’s will stay the same (in fact, you probably could open a 5% APY CD right now and it would still be honored, though you can close to that high of a CD rate at other banks).

The WaMu example is an example of a best case scenario, where nothing happens except the name of the bank on the statements. The best case scenario is that a bank acquires the deposits of your failed bank and continues to honor the CD’s terms as JPMorgan Chase does. (Of course, this depends on what your definition of best case is, if you got locked into a long term low interest rate from a few years back, maybe best case is they cancel all the CDs!)

Not all cases end this way, but even the worst case scenario is no big deal. The worst case scenario is that the FDIC is named the receiver, no bank buys the deposits, and they terminate the CD. Even in the worst case, you get all of your insured money back (just a little earlier than you anticipated).

Or, skip all the CD hullabaloo and stick the funds in one of several very popular and totally liquid high yield savings accounts.

(Photo: thetruthabout)


 Banking 
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Wachovia Next To Fall?

Since the biggest of the titans, Washington Mutual, was acquired by JP Morgan Chase last week, the spotlight now moves to Wachovia Corporation, another bank that carries a lot of “toxic” debt on its balance sheet. Shares tanked over 35% on Friday after the market had a chance to react to the WaMu acquisition news. (though Citi might be buying them up)

So what was Wachovia’s greatest sin? It acquired Golden West Financial Corporation in 2006 for about $25 billion at the height of the housing boom. Guess waht Golden West specialized in? “Pick-A-Payment loans” where borrowers picked what kind of payment they wanted. As you can imagine, that’s not all prime 30-year fixed stuff on those books.

“The fundamentals at Wachovia right now are not real strong, there is no question about that,” said Joe Keetle, senior wealth manager at Dawson Wealth Management, who previously spent 25 years at Wachovia. “But the reaction today has more to do with WaMu going under and waiting for Congress to pass a bill. It’s more emotional reaction today.”

As I said with WaMu, don’t panic. If you have deposits there, make sure you’re under the $100,000 coverage limit because there’s no reason to be above the FDIC limits nowadays. If you’re under the limit, just conduct business as usual until you hear otherwise. If you’re really concerned and think that stuff might get complicated, open an account somewhere else, and transfer over some spending money. That way you can still get access to your money in the event there is a failure and there’s an extended delay before you can access to your funds.

Wachovia shares plunge as investors question fate [AP]


 Banking 
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Washington Mutual Acquired by JP Morgan Chase

The word on the street is that JP Morgan Chase is buying parts of Washington Mutual after the FDIC seizes the country’s largest thrift. I guess all the reports of WaMu’s demise were not so greatly exaggerated.

The government on Thursday made the largest bank seizure in American history, taking over Washington Mutual, the severely troubled savings and loan, and selling pieces of it to JPMorgan Chase in an emergency deal intended to avoid sticking the taxpayer with a bill for another bank, according to people briefed on the plan.

Game over WaMu.

(WaMu account holders should read this FAQ that Chase published to learn what’s new)

Government Seizes WaMu and Sells Some Assets [New York Times]
JPMorgan Chase May Acquire Washington Mutual After FDIC Seizure [Bloomberg]


 Banking 
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No Reason To Be Above FDIC Insurance Limits

If you have more than $100,000, there is no reason to keep it all at one bank.

(There is actually one reason, but it’s not a good one. At most banks, the interest rate on jumbo CDs is a little larger than regular CDs but it requires that you open one with at least $100,000 – but that’s a bad reason.)

Here’s one horror story about a woman who kept more than $100,000 at Silver State Bank, the Nevada bank that recently went into FDIC conservatorship, and lost over $20,000 (~$20 million was uninsured in total).

(Click to continue reading…)


 Banking 
12
comments

FDIC Insurance Coverage Limits

With all the recent bank failures and looming potential failures (WaMu is on everyone’s radar now), a lot of people are worrying about and searching for information about FDIC insurance. The FDIC, short of the Federal Deposit Insurance Corporation, is a government corporation that insures banks deposits up to, generally, $100,000. The corporation was created after the Great Depression to dissuade individuals from going to banks and withdrawing their money if they though the bank was going under. With the insurance protecting the deposits, there would be no need for people to ‘run’ to the bank to withdraw their funds before a potential collapse. With many banks, a bad situation is made fatal because of a run.

(Click to continue reading…)


 Banking 
8
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WaMu’s Memorandum of Understanding

WaMu ATMAll eyes have been on the Treasury Department taking Freddie Mac and Fannie Mae into conservatorship this week but Washington Mutual also entered into a Memorandum of Understanding with the Office of Thrift Supervision, the regulator that manages certain banking institutions (here’s the difference between thrifts, commercial banks, and credit unions). Along with the MOU, they got rid of their CEO Kerry Killinger and put in Alan Fishman, who started Monday.

Some see the memorandum of understanding as a precursor to a bank’s failure but it’s just an agreement for a higher level of information sharing between the OTS and the bank. According to one spokesperson, it was only an “informal enforcement action.” It’s certainly worse than a bank without an MOU but having one doesn’t mean failure is imminent. The MOU requires that WaMu share more of its operational level details with the OTS so that they can monitor its activity, it makes no changes to WaMu’s operations, offerings, or general business model.

(Click to continue reading…)


 Government 
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Freddie Mac, Fannie Mae Failure Imminent

It’s no longer imminent, Freddie Mac and Fannie Mae have been assumed by the Federal Housing Finance Agency.

It seems extremely likely that the government will be taking over Freddie Mac and Fannie Mae.

(Click to continue reading…)


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