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FDIC Insurance
Old 09-27-2008, 12:24 AM   #1
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FDIC Insurance

This isn't about FIRE really, but those closer to FIRE may have more of an understanding on FDIC insurance than me.

I understand the coverages - essentially 100k per person/account in a bank. Someone said something that bugged me yesterday. He said that some bank in Ohio failed and the gov't could only cover about 50% of the FDIC insured assets.

He's probably misinterpreting right? Or is it possible that up to 50% of what you thought was safe is not?

I do understand that massive bank failures could somehow lead to not being able to cover all the assets, but he said something about how this was a smaller bank - and still only about half the assets were covered. Even with all the bank failures (and I mean banks/mortgages being sold to each other) - most people have still not had to worry about pulling their money from banks in a big way.

Separately, but what got me to thinking more about this:

I had a very small amount of money in a fund at Ameriprise that I cannot pull out. Something happened with the fund where the NAV fell from $1/share to .97 and they quit allowing folks to pull their money out. Now that really bothers me. I am willing to accept all kinds of risk with my money, but I cannot accept that a financial institution/mutual fund company would not let me pull my own money out. I just wonder - is this a common right that mutual fund companies have?

I have not been too concerned over the past few weeks. To be honest, if something happened and it was all gone in the market tomorrow, I could live with it. I have years to build it back, did it once, and could do it again. I just need to know at least what I'm dealing with, and that doesn't seem to be nearly as clear as before.
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Old 09-27-2008, 05:24 AM   #2
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Since FDIC began in the 1930's, no one has lost a penny of their insured bank deposits. The key word here is "insured." The amount insured has periodically increased over the years and it is now $100k for an individual outside an IRA and $250k in an IRA. There are games that can be played with multiple account holders to increase the limit of an account but it could bite you in the end.

If your account is above these limits, the insurance does not cover the excess but in many cases these have been either partially or fully covered. A lot depends on how bad the bank was when it failed and how friendly the bank taking over the deposits decides to be to keep big depositors happy.

There are various blithering idiots that like to point out that the FDIC fund can only cover a small fraction of the insured deposits and that when multiple bank failures overwhelm the FDIC people will lose their money. They are usually selling something "safe."

The government would have a total meltdown if people started losing insured deposits. The FDIC is a "full faith and credit" issue so I'm very sure the money would be magically printed as needed. The "small" FDIC fund is simply an accounting entry of the government. They have unlimited ability to move money around as needed.
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Old 09-27-2008, 08:05 AM   #3
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My understanding is that generally money market funds have to be released within seven days of a request, but while Ameriprise works out a way to cover loses in its fund the SEC gave them some additional time.

As far as big vs. small banks, it makes no never mind provided the bank is insured by the FDIC.
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Old 09-27-2008, 08:14 AM   #4
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Since FDIC began in the 1930's, no one has lost a penny of their insured bank deposits. The key word here is "insured." The amount insured has periodically increased over the years and it is now $100k for an individual outside an IRA and $250k in an IRA.
You raised a point I hadn't thought of. The FDIC limit of $100k has been in place for as long as I can remember. It really hasn't been indexed for inflation.

I doubt the government would up it at this point in time though.
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Old 09-27-2008, 08:27 AM   #5
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Okay, thanks. I think he may have misunderstood what was happening with the customers.
I should clarify that the fund I hold is not an Ameriprise fund, but held thru them. They have said that they would make up the loss to the Ameriprise holders out of their own assets.
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Old 09-27-2008, 08:28 AM   #6
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My understanding is that generally money market funds have to be released within seven days of a request, but while Ameriprise works out a way to cover loses in its fund the SEC gave them some additional time.

As far as big vs. small banks, it makes no never mind provided the bank is insured by the FDIC.
FDIC insurance was extended to money market funds but they have to pay for it. I don't know how it would impact Ameriprise if they "busted the buck."
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Old 09-27-2008, 09:15 AM   #7
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FDIC.Gov is the best place to get information and use the calculator to verify coverage of DEPOSITS. Credit Unions have similar in information for their DEPOSITS at NCUA.gov. The history of coverage limits should also be there.
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Old 09-27-2008, 11:03 AM   #8
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FDIC insurance was extended to money market funds but they have to pay for it. I don't know how it would impact Ameriprise if they "busted the buck."
FDIC or NCUA deposit insurance applies to "money market savings accounts" in banks or credit unions. These accounts are insured deposit accounts.

Money market funds are not insured deposit accounts. But the Administration has a $50 billion Treasury Department plan to insure money market funds. I'm not sure all the details have been worked out. hp-1147: Treasury Announces Guaranty Program for Money Market Funds
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Old 09-27-2008, 05:28 PM   #9
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FDIC or NCUA deposit insurance applies to "money market savings accounts" in banks or credit unions. These accounts are insured deposit accounts.

Money market funds are not insured deposit accounts. But the Administration has a $50 billion Treasury Department plan to insure money market funds. I'm not sure all the details have been worked out. hp-1147: Treasury Announces Guaranty Program for Money Market Funds
I did not read everything on the program but what I did read leads me to believe this program will insure the MMF $1 per share level but not the earnings. Wonder what the details will be and how it will actually work.
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Old 09-27-2008, 09:23 PM   #10
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Thanks for the links, I'll check them out.
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