Following the tumultuous events of the Great Financial Crisis, the banking industry in the United States has maintained a level of stability. The combination of historically low borrowing rates and an increased demand for digital services stemming from the COVID-19 pandemic has resulted in a steady influx of funds. However, recent developments have revealed vulnerabilities, with mounting interest rates impacting profitability and prompting customers to engage in classic bank runs at two sizable institutions in March 2023.
In response to the recent collapse of Greensill Capital and Archegos Capital Management, concerns have arisen over the potential for a wider banking crisis. The Federal Deposit Insurance Corporation (FDIC) and other regulatory bodies have taken swift action to mitigate any potential contagion effects. Despite these efforts, some depositors remain apprehensive, recalling the 2008 financial crisis. President Biden has sought to alleviate these concerns by affirming that the banking system is secure, and that deposit accounts are protected in the event of broader upheaval.
The Federal Deposit Insurance Corporation (FDIC) ensures the protection of your funds.
The establishment of the agency dates back to 1933, a period marked by the Great Depression. Its primary objective was to restore public confidence in the banking system, which had been severely impacted by the financial crisis. During this time, approximately 9,000 banks failed, accounting for roughly one-third of all banks in operation at that time.
The network of 4,700 member institutions has proven to be highly effective over the course of several decades. The number of bank failures since 2001 has been limited to just 563, with the majority of these occurring during the economic recession between 2007 and 2009. In the period spanning from 2020 to early 2023, only a small number of banks have ceased operations.
- Silicon Valley Bank (California)
- Signature Bank (New York)
- Ericson State Bank (Nebraska)
- The First State Bank (West Virginia)
- First City Bank of Florida (Florida)
- Almena State Bank (Kansas)
The process of acquiring FDIC insurance involves a bank submitting an application and paying the required premiums. While the primary responsibility of the agency is to provide deposit insurance, it also serves as a supervisor and examiner to ensure that banks and savings associations operate in a sound manner. Additionally, the FDIC is the primary federal regulatory agency for state-chartered banks that are not members of the Federal Reserve System.
In the event of a bank’s insolvency, the Federal Deposit Insurance Corporation (FDIC) assumes the role of receiver and provides affected customers with access to their funds. The FDIC is empowered to take over the failed institution’s assets, settle debts, and seek out a viable replacement to assume its operations. This critical function ensures that depositors are protected and able to access their funds while maintaining stability in the financial system.
Are your financial assets adequately insured?
The process of obtaining coverage for deposited funds does not require any action on the part of depositors as their accounts are automatically protected. Additionally, depositors are relieved from the obligation of filing insurance claims in case of any potential losses.
FDIC insurance provides protection for various types of deposit accounts, including checking, negotiable order of withdrawal (NOW), savings, and money market deposit accounts. In addition, it also covers certificates of deposit (CDs), cashier’s checks, and money orders. However, it’s important to note that FDIC insurance does not extend to non-deposit products such as stocks, bonds, mutual funds, cryptocurrency assets, life insurance policies, or safe deposit boxes. US Treasuries, on the other hand, are backed by the full faith and credit of the US government and therefore entail no discernible risk.
FDIC coverage provides protection up to $250,000 per depositor, per bank, per account ownership category, inclusive of interest earned within the cap amount. It is important to note that careful allocation of funds will enable individuals to maximize their protection. Please be aware that deposits held in distinct branches of the same bank will be consolidated for FDIC coverage purposes.
Diversify your financial portfolio.
It is possible that you are currently in possession of a substantial amount of funds. This may be due to the recent sale of a property, accumulation of savings for a future home purchase, or an inheritance. Alternatively, you may have recently retired and are considering the repositioning of your investments.
The ownership classification serves as a valuable means of establishing multiple account types, each with its own coverage of $250,000. These categories encompass individual and joint accounts, as well as retirement accounts such as IRAs, revocable trust accounts like PODs, and employee benefit plans.
A viable approach for couples seeking to maximize their deposit insurance coverage is to maintain individual accounts with the same financial institution, along with a joint account. This arrangement would entitle them to an aggregate insurance coverage of up to $500,000.
It is important to exercise caution in order to avoid surpassing the FDIC limits and ensure prompt access to your funds in the event of a bank crisis. Recovery of deposits exceeding $250,000 may take several years, as the FDIC liquidates assets of the failed bank and subsequently disburses periodic payments on a fractional basis.
It is advisable to conduct periodic reviews of any cash holdings with your financial advisor. This will ensure that you have adequate protection and security in place.