The Shocking Truth About the FDIC and Your Bank Deposits
Why you can't rely on the FDIC if another financial crisis hits and your bank goes under
by Bob Stokes
Updated: March 14, 2023
Editor's note: The failures of Silicon Valley Bank and Silvergate Bank have many observers of the banking system discussing the possibility of contagion. Even so, many depositors feel safe because their deposits are covered up to $250,000 by the F.D.I.C. (Federal Deposit Insurance Corporation). However, this feeling of safety may very well be misplaced.
Here are some important insights about the F.D.I.C. and the safety of your bank deposits.
Millions of U.S. bank depositors feel safe in the knowledge that the Federal Deposit Insurance Corporation will protect their accounts, even if their bank goes under.
Yes, it's true that the FDIC says it will do so. As their website states:
The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category.
But, the question is: Does the FDIC have the wherewithal to fulfill its promise?
In the event of a major financial crisis, the answer is an emphatic "no." Not even close.
Here's what the Elliott Wave Theorist said in August 2008, near the middle of the 2007-2009 financial crisis:
The FDIC is not funded well enough to bail out even a handful of the biggest banks in America. It has enough money to pay depositors of about three big banks. After that, it’s broke.
No doubt, most bank depositors would be shocked to learn this.
But think about it: No single entity could possibly insure all of the nation's bank deposits.
Yet, that FDIC sticker on the front of your bank is very reassuring. The discussions with your banker about your deposit "insurance" might be reassuring.
But, something that is not quite so reassuring is from none other than a former vice-chairman of the FDIC itself. Here's what Thomas Hoenig wrote for the Los Angeles Times in a Dec. 18, 2014 article titled, "FDIC couldn't cover a big bank bailout without taxpayer support":
As a reminder, when the financial industry imploded in 2008, Congress had to pass a special law to fund a $700-billion bailout ... . The Federal Deposit Insurance Corp. had nowhere near enough resources to fund their resolution.
Today, with assets of nearly $11 trillion and derivatives worth $4 trillion, the eight largest U.S. banks are far bigger and hold more derivatives than in 2008. Compare those numbers with the FDIC insurance fund of $54 billion. [Emphasis added]
These are eye-opening statistics.
The best way to protect your deposits is to adequately research the banks in your community, and pick one where the banks'; officers handle their customers' deposits prudently.
Indeed, the Theorist once remarked:
Relatively safe banks may become even safer. If they have the sense to inform the public of their relative safety aspect, depositors in a developing financial crisis will move funds out of weak banks into stronger ones, making the weak ones weaker and the relatively strong ones stronger.
But, as you've seen, it's a myth that the FDIC can always protect your bank deposits, and it's not the only myth. We have more.
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