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What happens if Bank Of America goes under?
Old 08-19-2011, 11:01 PM   #1
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What happens if Bank Of America goes under?

As somebody who emigrated from Argentina and knows of daily multiple bank runs, hyper-inflation, national defaults, extreme currency devaluation, blood on the streets (literally), and all-around financial carnage, I admit I might be a little "scarred for life" when it comes to trusting anybody or anything with my money. However, "the US is different", people keep telling me. And "if Bank Of America fails, then we have much bigger and serious issues to worry about, like where to get more bullets". You heard this sort of thing before as many times as I did.

But my question is a simple one, and as somebody with a significant amount of cash (6 figures... but I'm in my early 30's and to me that IS significant) sitting with Bank Of America, and with no debt whatsoever, I am genuinely concerned. What would you do? WHERE would you go? Every other banks is in a similar or worse position. A credit union? I'm in FL. If somebody has any credit union to recommend in the South FL area, I'm all ears.

I do have to say that, as much as I hate them, Bank Of America does offer an all-around functional and practical website where you can see your bank, credit card and investment accounts in one single screen, which, in this day and age, is a crucial feature. Any other recommendations of banks with similar niceties are also appreciated.

If you have an account with BOA, what are YOU thinking of doing?
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Old 08-19-2011, 11:32 PM   #2
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FDIC insured?
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Old 08-19-2011, 11:37 PM   #3
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Quote:
Originally Posted by Karloff
If you have an account with BOA, what are YOU thinking of doing?
(Disclaimer: I have accounts at BofA.)

Four words: "Too big to fail."

After having been merged with multiple Bad Banks, including Countrywide and a Wall Street investment bank, BofA is a Frankenbank bigger than anything before the Great Failures of 2008. If they needed twenty or thirty billion overnight, they could just hit the reserve window at the local Federal Reserve branch and put up half a million bad mortgages as security for a nice loan at 0%.

I'm not worried. Failure is unlikely. The biggest issue they have is making the bonus numbers for senior management. Absolute worst case, one morning I walk into the branch and there's a sign in the window that says "Under New Management", and maybe a nice Goldman Sachs banner inside. The checks will still be good, the cards will work about as well as they ever did, and the website will still be up. (my son went through this drill with the WaMu/Chase takeover. No issues.)
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Old 08-19-2011, 11:39 PM   #4
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Do you really think the FDIC has the ability to cover all of BOA's deposits in the event of a financially catastrophic outcome? There is no sarcasm in my question. I am truly concerned and really have no idea how a situation like this could develop, specially considering recent events and the fact that, as I understand it, the FDIC has had its butter pretty much spread out over too much bread recently...
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Old 08-19-2011, 11:41 PM   #5
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Six figures at any age is nothing to sneeze at! Nice!

Your deposits up to $250,000 in each name are FDIC insured (and some accounts with a higher balance are temporarily insured for more but you'll have to google that ). If you're talking about money invested in BofA stock, someone else can speak to that.

I think almost every bank still standing has pretty good Internet banking--we use a smaller bank for almost all our stuff and I can easily do everything online among our accounts, bill payments, transfer funds, etc.
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Old 08-19-2011, 11:44 PM   #6
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Every other banks is in a similar or worse position.
Where did you get that information from? BofA has huge issues with mortgages from acquiring Countrywide. Smaller banks have been closed by the FDIC but the numbers are falling U.S. closes 3 more banks, 68 so far in 2011 | Reuters. Most US banks are safe and in much better shape than BofA.

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Old 08-19-2011, 11:47 PM   #7
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Do you really think the FDIC has the ability to cover all of BOA's deposits in the event of a financially catastrophic outcome? There is no sarcasm in my question. I am truly concerned and really have no idea how a situation like this could develop, specially considering recent events and the fact that, as I understand it, the FDIC has had its butter pretty much spread out over too much bread recently...
I don't know what recent events you're talking about (i.e., I haven't heard the FDIC has bailed on any situation), but I heard someone ask a similar question to some guru financial talking heads and the whole panel responded that (a) it wouldn't happen and (b) the US would never not cover direct obligations to its citizens--the panel's opinion was that money would be pulled from foreign aid, etc. first.
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Old 08-19-2011, 11:48 PM   #8
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Originally Posted by Karloff
Do you really think the FDIC has the ability to cover all of BOA's deposits in the event of a financially catastrophic outcome? There is no sarcasm in my question. I am truly concerned and really have no idea how a situation like this could develop, specially considering recent events and the fact that, as I understand it, the FDIC has had its butter pretty much spread out over too much bread recently...
Yes. FDIC has an essentially unlimited line of credit with Treasury, to be paid back by adjusting the FDIC fees charged in the future to mamber banks.

Politicians will make the usual noises about this, what with an election coming up, but in general they aren't THAT stupid...
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Old 08-19-2011, 11:56 PM   #9
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I won't be overly worried if I had an account with BofA. A stockholder a different story, I just sold the last investment I had in BAC some preferred BofA stock this week.

As long as the amount of deposit in BofA is less than the FDIC insurance 250K, I think you should be fine. Now there is by no means enough money in the FDIC insurance fund to come close to being able to pay back the 1.0 trillion of deposit at BofA. That is the bad news. The good news is that BofA has huge amount of assets almost $2.25 trillion.Now how much some of the assets are actually worth for example mortgages is an excellent question, which I don't pretend to have an answer for.

Balancing out these $2.25 trillion in assets BofA owes $2.05 trillion dollars. The good news as a depositor is that is that $1 trillion of deposits is the first thing that gets paid , before shareholders, bondholders, CEO salaries etc. so everybody else involved in BofA has to lose a trillion dollars before you lose a penny. Even by government standards a trillion is hell of a lot of money.

I disagree with you that all Banks are in bad as shape of BofA. BofA was never a brilliantly run company to begin with then the during the crisis they bought two of the worse financial companies CountryWide mortgage lending, and MerrilLynch. This combination of 3 of US's lousy financial firms plus a horrible economy has threaten the solvency of America's largest bank.

Over the years I've done business with BofA a number of times, as customer my experiences has ranged from acceptable to awful, with on balance being poor. So simply as a former customer I'd switch. There are number of small, medium and even a few large banks which are in decent shape in the Southeast. Strictly from a financial aspect (i.e. I have no idea if they offer good services) BB&T is in good health, and since it has acquired Colonial Bank which has lots of branches in Florida.

I've been personally be delighted with Charles Schwab bank, and with free ATM withdrawal anywhere in the world, .25% interest on checking accounts, and no fees, never felt the need to have any other bank. I believe Fidelity has a similar situation.
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Old 08-20-2011, 09:48 AM   #10
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Thank you all for the feedback and comments. Yes, this would only apply to regular checking and savings accounts and one personal investment account with MLynch (only use it because they offer 30 free monthly trades), but I do not own any BOA shares. I might open a new account somewhere else and transfer a nice chunk there, just to be safe. But I hate to complicate things, the need to track yet another account, etc.

Does anyone have any experience with TD Bank? They recently came to our area and their expansion and marketing campaign has been quite something lately. Also, they are (to my understanding) the only bank that opens 7 days a week. But I do not know anybody that uses them.
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Old 08-20-2011, 10:40 AM   #11
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Karloff,
You can get an independent of a bank's finances at Bauer Financial. Bank or Credit Union Star Ratings

You may want to google TD Bank to see if there are any customer service postings.
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Old 08-21-2011, 03:02 PM   #12
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FDIC insured?
The very reason that BoA will not go under.
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Old 08-21-2011, 03:47 PM   #13
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All I have with BoA is a credit card.

So, if they go under, maybe they'll just say "skip the outstanding balance"
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Old 08-21-2011, 04:12 PM   #14
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What is the FDIC backed by ?

If I ask, it's because I went to my French bank the other day and asked them to explain what my exposure was if the whole place went "Tango Uniform". They pointed to national FDIC-equivalents on some of my accounts. I told them that as far as I was concerned, these were worthless, because if the situation got so bad that they went under, the French government probably doesn't have 200 billion Euros under the mattress to pay people off. They went a bit quiet at this point.

And I'd really only gone round to ask how I would get at my managed funds, which are held via an insurance/asset management company which is part of the same group. I like to imagine that those are ring-fenced, but again, when the solids start to impact the air-conditioning, I tend to assume that the big institutions would grab their share and people on my scale would be SOL (or invited to sue them).

There is a precedent for this. France and the US are much bigger than Iceland, but then so is their deficit and their banks' exposure. UK and Dutch holders of Icelandic bank accounts were bailed out by their governments (the total was about $7bn, I think; in any case, not a world-ending amount for a rich country) with said governments then taking the Icelandic state to court to get the money back. You can sue a country of 300,000 people. I'm not sure that you can sue one which is either 200 (France) or 1000 (US) times larger. They'd probably just wave the nukes at you.

It seems to me that these schemes were designed to cope with individual banks having management problems, not a general collapse.
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Old 08-21-2011, 04:54 PM   #15
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It seems to me that these schemes were designed to cope with individual banks having management problems, not a general collapse.
They are designed to prevent a general collapse by giving individuals confidence that their money is safe. Do try to be constructive.
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Old 08-21-2011, 05:44 PM   #16
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There is a precedent for this. France and the US are much bigger than Iceland, but then so is their deficit and their banks' exposure. UK and Dutch holders of Icelandic bank accounts were bailed out by their governments (the total was about $7bn, I think; in any case, not a world-ending amount for a rich country) with said governments then taking the Icelandic state to court to get the money back. You can sue a country of 300,000 people. I'm not sure that you can sue one which is either 200 (France) or 1000 (US) times larger. They'd probably just wave the nukes at you.

It seems to me that these schemes were designed to cope with individual banks having management problems, not a general collapse.
Ah so you've figured out the US and other developed countries secret plan to solve the debt crisis. "So you and what army is going to act as debt collector, remember our threats are backed by nuclear weapons"

Now I have no clue about the French system. But the FDIC is actually sorta of, kinda of, in almost ok shape. Here is Schwab's assessment. Now admittedly the $45 billion that the FDIC has in the insurance fund is small compared to the $1 trillion in deposts BofA has. It also was run up until last month by an exceedingly capable person, Sheila Bair. I think it is somewhat encouraging that the FDIC actually lower assessment this spring so that banks now pay between 5 to 35 basis points for each $1 of deposits into the insurance fund. down from 45 max last year.

Still if somebody wanted to generate a flash mob go to bank XYZ and withdraw all of your money I am sure the system in either country could collapse in a week . Fortunately most of the folks who'd participate in flash mobs don't have a lot of money in banks.
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Old 08-22-2011, 10:54 AM   #17
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To the OP....

It seems like you have mutiple accounts at BOA... checking, savings and investment...

First, the investment account is not FDIC insured... but it also is not that much at risk... you own stocks/bonds in that account (or mutual funds) that are separate from the banks assets... so if the bank goes under, nothing happens here...

Your checking and savings are a different matter... you should make sure you are not over $250,000 in interest bearing accounts in total... if you are below that, then you are good to go...

Me... I would not keep even close to $250K in any styled account at a bank... no matter what is said.... if they mess up and do not put the correct name etc. down then you might not be insured... yea, yea... I know that you can use different names and combinations etc.... but if they mess when filling out the paperwork, up you pay the price, not them...
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Old 08-22-2011, 11:33 AM   #18
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They are designed to prevent a general collapse by giving individuals confidence that their money is safe. Do try to be constructive.
I wonder what the US national debt as a percentage of GDP was, when the FDIC was set up...
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Old 08-22-2011, 11:57 AM   #19
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They are designed to prevent a general collapse by giving individuals confidence that their money is safe. Do try to be constructive.
I am sure there is nothing to worry about. Currently, FDIC has about $114 billion in real monies covering about $3.5 trillion in deposits. Should too many banks fail, they can borrow $50 billion more from the Fed and then lobby Congress for more money after that.

Of course, if you read the fine print, in the event of an economic calamity, FDIC reserves the right to pay back your money, although they are allowed up to 99 years to do so.

So, nothing to worry about.........
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Old 08-22-2011, 02:07 PM   #20
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For folks worried that all US banks might simultaneously implode, combined with a US Treasury default and deferral of FDIC reimbursements until the 22nd century, I suggest overseas investments.

One might, for example, want to invest in bonds for an Australian commodities firm backed by oil futures from the Republic of Bashkortostan, or Guatemalan hydroelectric bonds. Or you could just trust your financial advisor.

Then again, you could look at the actual data and statistics. Look at credit default swaps for a specific bank's bonds, for example, or against Treasury bonds (giving odds of default currently at 0.026%). There just might be better things to worry about.
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