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Old 06-18-2023, 10:30 AM
Brwne Brwne is offline
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Default FDIC insurance, accounts and other deposits

Quote:
Originally Posted by Boomer View Post
I don’t think this is over.

Looks to me like when Congress voted in 2018 to soften bank regulations, they sent the fox to guard the chicken house.

Can someone here explain how things work when the FDIC insurance has to kick in? Could it become a convoluted mess that takes a long time to get your money back? I hope someone can enlighten me…..just in case.

(I understand the insured limits — for regular people. But those who ignored the limits willy-nilly are still getting paid by the FDIC. I know that decision was based on the potential for long range fallout because there was seriously big money on deposit for running businesses, and I guess there were certain banks that could supposedly handle those kinds of deposits. But how long can that kind of thing continue if the FDIC decides to pay out more to the technically uninsured?)

These sure are some weird, weird financial times.

Boomer
Banks pay an insurance % on ALL deposits to the FDIC. When interest rates were virtually zero, banks lost money on deposits. The FDIC insurance is based on a bank and the account's tax id or Social Security numbers - not account names. The insurance covers the principal balance only.

There are companies that provide FDIC insured accounts "automatically" by spreading
those deposits amount a large group of banks. You deposit $1m and get a CD from your bank and CD's from 3 other banks. All 4, totaling $1m, are FDIC insured. Simultaneously, your bank gets a deposit from each of the 3 other banks and, hence, still has an effective benefit of your $1m deposit.

The current bank problems stem from hyper inflation causing the FED to increase interest rates quickly. The safe haven for banks, historically, had been T-bills for cash investments - good faith and credit of the US Government - held to maturity, they don't lose value. As interest rates rise, the market value of the T-bills decreases to create a current market yield. Not a problem unless the bank needs liquidity to cover account withdrawals and must sell their T-bills in the current market.