Tag: FDIC

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banking

Ally Bank Bows to FDIC, Slashes Rates

Should a well funded bank be able to set their own interest rates to attract new customers, or should they bend to the pressure from the Federal Deposit Insurance Corporation (FDIC) to lower interest rates? If you support the free market, your answer would probably be no. But that is what recently happened when the American Bankers Association (ABA) sent a formal letter of complaint on behalf of its members to the FDIC.

The complaint stated that Ally Bank was offering higher interest rates than its competitors, and that Ally Bank had plans to receive funds through the Treasury Liquidity Guarantee Program (TLGP).

The FDIC’s Temporary Liquidity Guarantee Program backs financial institutions and allows them to borrow money at near-Treasury rates in exchange for a fee. Because Ally has been approved to borrow money from the TLGP, some ABA members complained they were using the TLGP funds to attract new customers by offering higher interest rates that was reasonable in the current economic environment.

Should the FDIC control interest rates?

The government shouldn’t regulate every aspect of private industry, but the lines become less clear when there are government bailouts or even government ownership on the line. The FDIC responded to the ABA’s letter by sending a letter of their own to Ally Bank, essentially telling them to lower interest rates so long as they participate in the TLGP.

What does this mean for Ally Bank members?

Overall, not much will change except interest rates. Ally Bank accounts are still covered by the FDIC so there should be no problems with customer funds no longer being guaranteed, and there should be no other differences noted by customers. Unfortunately, it means that new customers who were lured by the promise of higher interest rates will see them fall a little bit – through no fault of Ally Bank. It’s just an unfortunate change of events from a customer perspective.

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banking

$250k FDIC Deposit Insurance Extended to 2013

The Treasury Department recently approved the FDIC’s request to extend the temporary deposit insurance limit of $250,000 from the end of 2009 to 2013. This move was made to add stability to the banking industry and instill more consumer confidence in our economy.

Until last year, the FDIC insurance deposit limit was $100,000. However, consumer fear and failing banks lead to the approval of a temporary increase in insurance coverage. The $250,000 limit was set to expire at the end of 2009, but now has added life.

According to the FDIC, on January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except for IRAs and other certain retirement accounts which will remain at $250,000 per depositor.

National Credit Union Share Insurance Fund (NCUSIF) insurance limits have also been extended through the end of 2013. The NCUSIF protects money held at credit unions and is administered through National Credit Union Administration (NCUA). The limits are also $250,000 per account and are set to return to previous levels on January 1, 2014.

The FDIC and NCUSIF protect your money

Thanks to the FDIC and the  NCUSIF, no protected account at a bank or credit union has ever lost money due to a bank failure. For more information about how the FDIC works, check out this great video: Watch the FDIC Takes Over a Bank.

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banking

How the FDIC Takes Over Banks

Many US banks have already failed in 2009, and economists are forecasting more bank failures before the year ends. The economic crisis has hit many banks, large and small.

If you ever wanted to know what happens if your bank fails, this 60 minutes video shows how the FDIC comes in to take over banks when they fail.

3 Ways the FDIC can close a bank:

According to this video, the FDIC can close a bank one of three ways:

  1. Close bank and pay depositors
  2. Run the bank themselves
  3. Sell the bank to someone else to run

Of these options, the FDIC usually prefers to find another financial institution to run the bank, that way they aren’t on the line for reimbursing as many customers.

Make sure your deposits are protected

Always make sure the bank you join is a member of the FDIC, so your deposits will be covered in the event of a bank failure. If you join a credit union, make sure your credit union is a member of the NCUA, which is a similar government agency that protects deposits in credit unions.

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banking

More Banks Fail and More Bank Failures in the Forecast

The news seems to get worse each day – US banks are failing at a rate that hasn’t been seen in decades. According to this CNN article, there have already been 14 bank failures through the middle of February. There were 25 bank failures in 2008, meaning we are over halfway to last year’s number of bank failures through 2 month. And more bank failures are on the horizon.

What should you do if your bank fails?

In a previous article I asked the question What Happens if Your Bank Fails? The short answer is that if the bank is covered by FDIC insurance or the NCUA, then you don’t have much to worry about as long as you didn’t have deposits above the limits.You may consider moving your money to another institution, but the bank will likely be absorbed by another financial institution or otherwise taken over, so it shouldn’t matter much. The bigger problem is with the system.

How do bank failures affect the US?

Banks failures are hurting the US. Consumers and tax payers are losing confidence in the banking industry and the government is spending billions of dollars on FDIC insurance payments. The collapse of IndyMac last summer cost taxpayers $8.9 billion from the FDIC fund, and the FDIC maintains that losses will extend up to $40 billion by 2013. With banks failing at the current rate, don’t be surprised if the final numbers exceed expectations.

A downward spiral?

Banks are hurting due to bad loans and mortgages and no longer have the cash flow to continue making as many loans. The Fed lowered rates to roughly 0% to increase the lending rate, but that also means banks aren’t making as much money on loans. The lending market has also dried up, with lending restrictions tightening and fewer loans being made. Few new loans at lower rates means lower cash flow. See where this is going? Yeah, it’s ugly, and it’s getting worse.

What does this mean for high yield savings accounts?

Well, your money should be safe as long as you bank with an institution covered by the FDIC or NCUA. But as you have probably noticed already – interest rates for high yield savings accounts have dropped dramatically over the last few months and will continue dropping for the foreseeable future. Better start looking into high yield CDs if you want to lock in higher returns.

Categories
banking

What Happens if Your Bank Fails?

bank-failures-by-stateAs of Early February, there have been 34 bank failures in the US in the last 13 months, including 9 already in 2009. That is a large enough number to cause concern for the banking industry. But does that mean you should be concerned?

Not if your bank is a bank that is covered by the FDIC or the NCUA. If your bank is covered, so are your deposits, up to the federal limits.

FDIC and NCUA insurance limits

Until last fall, those insurance limits were $100,000, but the federal FDIC and NCUA insurance limits were temporarily raised to $250,000 to entice more people to leave their money in bank deposits, which would allow banks to lend more money. This higher FDIC limit is set to expire December 31, 2009.

Should you worry about your bank failing?

Not really. As long as your bank is covered by the aforementioned federal programs, then you don’t have much to worry about unless your deposits are above the limits. If they are, try putting money in your spouse’s name, a high yield CD, or into another top high yield savings account. That way you maximize your protection under the FDIC and NCUA insurance limits.

Bank Safety is important

In a recent post we talked about bank safety when we asked the question – is online banking safe? The answer is probably yes, so long as you are taking the proper precautions – using updated software and operating system, anti-virus software, updated spyware program, etc. You can never be too careful when you are dealing with your online bank accounts!

Photo source: CNN Money.