If FDIC did not exist...

[OldShooter]

"I am more concerned about the return of my money than the return on my money.". This is often attributed to Mark Twain (Samuel Clemens).

So your only investments are in government guaranteed bonds and bank deposits?

 

[Sunset]

I don't want to return to 1929.
Without FDIC people could lose all their money in a bank. For many poor folks that is ALL their money.

I think the FDIC makes banking less risky, as the banks themselves jointly pay for the FDIC costs, so they have a vested interest in ensuring other banks don't default on their customers.
So the collective of the banks ensure the gov't regulations prevent Yahoo's from starting their own legal banks. Ensuring a bank started actually has good backing.

 

[rembrandt]

So your only investments are in government guaranteed bonds and bank deposits?

Basically. For me, losing feels worse than winning feels good.

 

[audreyh1]

The FDIC was created in 1933.

 

[OldShooter]

Basically. For me, losing feels worse than winning feels good.

Exactly. Common human behavior. You might be interested in reading some of the behavioral finance work; Richard Thaler and Daniel Kahneman. They spend quite a bit of time looking at humans' loss aversion and its effects. For example, "I'm going to wait until it is back up to where I bought it, then sell." is loss aversion in action. The psychology is that the loss doesn't exist until the asset is sold. Which, of course, it does.

 

[2017ish]

I bought a noncallable, 250K BoA CD through fidelity IRA a few months ago to "guarantee" our 2026 spending amount. Probably would have gone with directly government issued instruments if no FDIC. (This was our first CD since the 80's.)

Otherwise, we just have a BoA checking account for that I keep to low five figures; I doubt that the lack of FDIC coverage would impact our preference to keep that holding.

 

[pb4uski]

But think about that...do you want to have to research what bank you put your money in, the same way as some investment in a company? Going through their financial statements, having to understand their capital ratios, trying to understand what risks they've taken? And then what if it's a complete sham? Fugettaboutit.

+1 Also, copyright's premise that FDIC insurance makes bank lending practices riskier than they should be is flawed... with or without FDIC insurance banks are going to have compete with other banks to attract deposits. FDIC surveilance provides more guardrails against risky practices than no FDIC surveilance at all.

If there was no FDIC insurance, then lenders/investors would have to rely on rating agency financial strength ratings like they currently do for insurers and corporate lending... no thanks, let's stick with FDIC insurance.

 

[Gumby]

I have a plan. It's a very detailed plan. I keep it in my book of plans right between the plan for what to do if the sun goes supernova and the plan for what to do if the Milwaukee Brewers win the World Series.

 

[rk911]

Folks, the question posed was, if there were no FDIC, what would you do? Not interested if any of us believe it would never happen, asking what would you do if it did happen?

Mods - if this goes off the rails, please shut it down...quickly.

Less than 5% of our assets are under FDIC 'protecfion. Our primary bank is used for receiving SS and pension benefits and routine bill payments.

 

[NeilDH]

I keep very little in banks, like 1% of our assets, so the only thing I'd do differently is weigh the strength of the bank: Chase, not too worried, but online banks, maybe I'd worry a little more.

My bigger worry would be my uncle's and aunt's assets that I oversee (when he lets me); they're almost all in CDs. At different banks so that they're mostly under the FDIC limits. I want to move nearly all the assets to Schwab (again, when he lets me), so I'd be hastening that move.

 

[jebmke]

I keep very little money in banks. Only enough to pay bills.

 

[street]

I have great risk losing with a brokerage company than with a bank. Really nothing is protected where we have our investments with. It is all risky so I would do nothing different.

 

[TheWizard]

I personally have never owned a CD and haven't played with a savings account for decades.
I keep ruffly $10k in checking and the rest gets invested into stock index funds.
The FDIC isn't something that matters much to me...

 

[youbet]

Without FDIC, I'd store money in banks using similar criteria to investing in common stock.

 

[audreyh1]

I don’t really get the point of this thread. I remember DM saying FDIC was a huge relief to her parents back in the 30s. They lost the multi-generational farm to the bank during the Great Depression. The local bank had DGF continue managing the farm as he dug himself out. Really - not better options when family farms are going under - keep the best farmers busy. You don’t want the property just sitting there. What horrific times for so many people.

 

[copyright1997reloaded]

But think about that...do you want to have to research what bank you put your money in, the same way as some investment in a company? Going through their financial statements, having to understand their capital ratios, trying to understand what risks they've taken? And then what if it's a complete sham? Fugettaboutit.

Instead, we get a race to the bottom. I do understand the issue you point out. It's the unintended consequences of any set up that can get you. Yes, having "risk" associated with a CD or savings account/demand account would also have possible unintended consequences.

But,I have to do that for equity investments. I have to do that for bond investments. I have to do that for preferreds. Alternatively, I can (and do) lend money to the US Treasury as my "risk free" money dictates.

 

[copyright1997reloaded]

How many of you keep money in a money market fund that does not have FDIC insurance?
Fido's SPAXX - although a government MM only has 33% of itself in T-Bills. The rest is in repo's, agencies, etc. Or Schwab's SWVXX - which is mostly commerical paper?

I know when we had our latest round of bank failures (e.g. SVB), I put my Schwab money in SNSXX instead of SWVXX as a way of reducing risk.

 

[Badger]

I sure hope this won't be a possibility. I have a foam mattress so stuffing it with money isn't an option.

 

[njhowie]

But,I have to do that for equity investments. I have to do that for bond investments. I have to do that for preferreds. Alternatively, I can (and do) lend money to the US Treasury as my "risk free" money dictates.

Understand that you are not typical or indicative of the wider population that does not have the time, inclination, knowledge, or desire to do that. Simply having a safe place to save your money shouldn't need to involve so much work or taking any risk.

 

[Rianne]

As crypto becomes more popular, I wonder what that will do to our entire securities system. There's an excellent discussion on Jon Stewart's EOY podcast with Mark Cuban.

 

[MichaelB]

I don’t really get the point of this thread. I remember DM saying FDIC was a huge relief to her parents back in the 30s. They lost the multi-generational farm to the bank during the Great Depression. The local bank had DGF continue managing the farm as he dug himself out. Really - not better options when family farms are going under - keep the best farmers busy. You don’t want the property just sitting there. What horrific times for so many people.

I agree. I also think people look at this only how it affects them personally and don’t consider the consequences to others, business and the economy at large. As we learned from the Great Depression, when more than 9000 banks went under, these are enormously destabilizing and catastrophically destructive events.

Not keeping money in the banking system limits credit generation in the US, which in turn limits economic activity. Our banking system is built on trust. One bank failure leads to another and is highly contagious.

If FDIC insurance went away we might find an alternate repository for our savings and cash, but if the system starts to collapse there’s likely no place to hide.

 

[Chuckanut]

I sure hope this won't be a possibility. I have a foam mattress so stuffing it with money isn't an option.

A recent FTC ruling requires all mattress stores to post a prominent sign warning shoppers that foam mattresses cannot be used to safe guard cash. The mattresses must also be tagged with the same warning. It is a Federal offense to remove the tag.

 

[Gumby]

For those like me who have only the tiniest portion of their assets in an FDIC insured account, a bank failure is mostly just an inconvenience, because it will interrupt our ability to receive and make payments on our regular expenses. However, for the majority of people who have not much more than the money in their checking account and maybe a small bank savings account, a bank failure with a loss of deposits would be devastating. If they are paying attention at all, I would expect the loss of FDIC protection to lead to a run on the bank by these people. And that would cause severe economic destruction and negatively affect my assets. That's the personal value I see in having the FDIC guarantee.

 

[SecondCor521]

I think that if the FDIC went away, the banking system would replace it with a private version over the weekend.

Not worried in any case since I still run a just-in-time cash system so I have extraordinarily little cash on hand. If you include my credit card balance, I actually am net negative in cash almost all of the time.

 

[Al18]

Removing the FDIC insurance would be a great disservice to anyone who has multiyear CD's at banks. By creating the FDIC in 1933, the government has said for nearly 100 years your money is safe in a bank, as long as you don't have more than the limit. In 2008 when at least one money market fund broke the dollar, the government stepped in to limit the risk. I've been investing in CD's for nearly 50 years now. Imagine how you would feel if you've been paying for life insurance for that period of time, and suddenly you find out your life insurance company went out of business.