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$250K FDIC Insurance Limit Helps Only Top 1.6% of Americans

We seem to have created a new device in Washington; it is a magic socializer wand. This wand sweeps aside constitutional limitations, enables the spending of trillions of dollars of tax payer money with little to no oversight and tramples any calls for informed debate.

With a puff of smoke, it instills fear into the hearts of the American people (opens their wallets) and collapses months of reasoned consideration by intelligent people into sweeping overnight approvals.

Government uses Fear to Increase FDIC Insurance to $250K
Let’s take a small example of what just happened with the FDIC insurance for deposit accounts contained within the misshapen bailout plan (“rescue plan” for supporters). The wand is waved and we are told by the “experts” including the ever eminent Lawrence Lindsey, and subsequently parroted by every completely uninformed TV personality for the day, that one of the things that “must” happen to restore confidence in the banking system is to raise the amount of deposit insurance.

One very prominent stock advisor even said it should be unlimited or raised to at least a million dollars an account. This then would stop panicked depositors from rushing to withdraw their money from the banking system (a “run on the banks”) and work to help stop additional bank failures.

Upping the FDIC Insurance Limits Helps the Elite at the Cost of the Middle Class
So, the wand was waved and it became so. Overnight, the FDIC insurance went from $100,000 per account to $250,000 per account. Admittedly, less and less stunned by the power of this wand, I couldn’t help but think about the following:

  • How many people is this really going to help?
  • Who are the people this is really going to help?
  • How much is it going to cost, since there will be a commensurate increase in FDIC insurance premiums?

Banks Must Pay Higher Insurance Premiums to FDIC
Since the banks will have to pay more in insurance premiums, this will, in turn, reduce their already eroded profits. This means that banks will have to increase what they charge in interest rates or fees and/or reduce the amount they pay depositors to pay for the increased insurance cost.

Let’s take a quick look at the numbers from the FDIC Statistics on Depository Institutions Report, U.S. domestic deposits as of 6/30/2008:

As detailed above, 98.4% of the current deposit accounts were already $100,000 or less, the amount already covered by FDIC insurance. The rules drive some part of the numbers (i.e., since the limit is $100,000, people keep their accounts under that level) but if you had a joint account under the old rules, you would still have qualified for $200,000 in deposit insurance.

The average balance in the accounts under $100,000 is $5,706. Using averages can certainly skew the statistical analysis (the unavailable median would be nice to compare); however, the fact that the average is so far removed from the cap tells you that the majority of the depositors were already covered.

The fact that a few wealthy people have to understand the rules and work within them doesn’t seem to merit this sweeping change.

In summary, we have a plan to double the FDIC insurance coverage to take care of 1.6% of the people with accounts that have an average balance $401,161. All of the system’s depositors will face increased costs when doing business with the banks, in order to increase the insurance coverage for a relatively small number of people.

Sound familiar?
The wand has done a great job in keeping actions like this within its socialist tenants by scaring the American people who earn the money into handing over the keys to free market capitalism. Many more current examples of the truth behind the Halloween mask can be found at http://pallante.typepad.com/

We’d better start in on collecting and destroying these wands or the next puff of smoke you see might contain our constitution, our precious “free market capitalism” and your individual freedom.

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Comments (68)
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68 Existing Comments
  1. debmc said:
    on October 10th at 02:04 pm

    Frankly, I’m not sure I agree with that analysis. If a person saves, and invests wisely, why shouldn’t that person be rewarded for doing that? People who save already have to pay tax on the interest on their savings, as well, so I don’t really see a problem with increasing the amount of FDIC Insurance. And even if what you point out is true, that it will help only 1.6% of Americans (which I dispute, lol), how costly could it really be?????? And I see the ability for an investor to increase his or her accounts in one bank as overwhelmingly positive for that particular bank. :)

  2. 411 Realty,Inc. said:
    on October 10th at 02:55 pm

    I agree with wu,the increase will not help the average individual.The complete bailout dove down to the wrong root of the problem.The wand socializers have been out of touch with the average worker,and will continue to be elected,until we elect no more.

  3. Shea said:
    on October 10th at 02:56 pm

    Debmc, it’s not just helping 1.6% of American’s, it’s hurting ALL Americans. How are the banks going to pay for the extra insurance? Pass it down to you and me…which really means you and I are funding this insurance. I think the main point that we can pull from this article is not that the FDIC is raising the limits…it’s the government (AGAIN) doing what they think is right. The government taking MORE of our hard earned money and using it at their discretion. How costly could it really be? How costly can trillions of $$$ be? With how the markets look, I would think American’s were smart enough not to put all eggs in one basket. The FDIC raising the insurance is ridiculous and JUST another load of bricks added (by our socialist government) to the camel’s back.

  4. goodoffer said:
    on October 10th at 03:01 pm

    I think the key point of the FDIC insurance increase was to alleviate the run on the bank. WAMU ultimately failed was due to the run on the bank where $16 billion was gone within a week.

  5. debmc said:
    on October 10th at 03:05 pm

    Yikes! Don’t you think calling our government “socialist” is a little extreme, there, guy??? I really don’t see a problem with the increase in FDIC insurance per se; the other issues of concern to you (and me) are another basket of eggs. Lumping the FDIC insurance increase into those other issues is not really appropriate or warranted, imo.

  6. Shea said:
    on October 10th at 03:12 pm

    Definition of Socialism- Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.

    I’m not being extreme…but it’s needed. WAMU ultimately failed because they were one of the leaders in originating and servicing “Option ARMs” and other over-agressive programs. Because of their not so smart (trying not to be extreme:)) decisions, WE are be forced to pay for it.

  7. Johns Wu said:
    on October 10th at 03:14 pm

    The point is, whats the point of increasing FDIC insurance (at the cost of everyone) when only 1.6% of Americans have enough money to benefit from it?

  8. debmc said:
    on October 10th at 03:28 pm

    Frankly, for the richest Americans, probably the 1.6% we’re speaking of, the FDIC limit increase probably won’t even apply, because their monies are elsewhere. The increase in the limit from $100K to $250K benefits the average investor who over time has accumulated money and gets tired of moving it all over because of the $100K limit. I know several people that fall into that category, that can hardly be described as rich. Plus, if the banks smartly take advantage of the increased per depositor FDIC insurance limit, I see it as a way to gain a market edge, and offer more and better products to consumers like you and me.

  9. debmc said:
    on October 10th at 03:29 pm

    Shea, WaMu was not alone in these practices. Many of which were caused by too MUCH deregulation, frankly. :)

  10. Ian said:
    on October 10th at 03:39 pm

    I’m a little amazed at some very important information that was left out of this post. First of all, and as someone previously noted, Washington Mutual in the end was brought down by a run on UNINSURED DEPOSITS. The bank might still be around today if the FDIC insurance limits were higher prior to their fall. Secondly, you noted that your use of average isn’t entirely appropriate for forming a truly educated opinion on this. I agree. The use of median deposits is far more accurate. So while it is really nice that we can sit around and debate unhelpful numbers, maybe you shouldn’t waste our time. Third, you’ve neglected an important class of customer. While an individual can manipulate ownership types to increase their deposit insurance, a small business cannot. They are stuck with the FDIC insurance limit. So what happens when it comes time to make payroll and pay their bills at the end of a month where their bank has failed? That kind of thing can break a small business. Fourth, the FDIC insurance limit has not kept pace with inflation over the last 70 years. Fifth, the rescue/bailout bill specifically forbade the FDIC to raise insurance premiums due to the rise in FDIC insurance. I won’t debate with anyone that that is an entirely idiotic thing to forbid, but there it is. A premium increase was already in the works because the fund is being depleted due to bank failures. So when your interest rate decreases or your bank fees increase, don’t blame it on the rise in the FDIC insurance limit, blame it on the incredibly idiotic business practices of the past several years.

    I’m disappointed by the topic and content of this post.

  11. Shea said:
    on October 10th at 03:51 pm

    How much more are WE going to be FORCED to pay??? This Washington Mutual arguement is ridiculous. In the end…in the end…in the end…

    How did this begin? Has there been any legislation or law to prevent this from happening again? NO. This is a great article explaining where everything started-
    http://pallante.typepad.com/we_the_cared_for/2008/09/governments-social-engineering-a-key-to-the-credit-crisis.html

  12. David Hooker said:
    on October 10th at 03:52 pm

    I am a sociology major. When I was in school they warned of people that would take figures and use them to indicate something that was completely inaccurate. Look again dummy! There are 1.6% of the depositors that were not careful enough to keep their cd accounts within the insured $100,000 limit. Many people simply have more than$100,00 in cds and are forced to move them around under different cd titles, and in different banks. By increasing the ammount covered at each bank there will be more people who will disposit and use cds, therefore giving the banks more money to loan (liquidity) which is desparately needed at this point in the banking system. Or do you want the government to take care of everything? It’s hard to believe they actually let some people write as though they understand anything about banking. No wonder the banking system is so messed up.

  13. debmc said:
    on October 10th at 03:54 pm

    Thumbs up to Ian and David. I believe they’ve hit the nail on the head! :)

  14. Shea said:
    on October 10th at 04:17 pm

    Sociology Major David,

    In your studies, did they also warn you about tunnel vision? To answer your question about wanting the government to take care of everything- NO! “Taking care of” is something the government has been trying to do is actually the #1 reason we’re in this mess now!

    People have lost the meaning of freedom. People don’t know what true freedom is. All they want is the freedom to feel comfortable.

  15. debmc said:
    on October 10th at 05:22 pm

    With all due respect, Shea, why should the government FAIL to step in when something makes absolute sense? Especially when there is so much at stake! Ian is 100% right about the risk to small business vis a vis the $100K v. $250K FDIC limit. I have worked in small businesses all my life, and this is a HUGE benefit to the small businessman!

  16. Shea said:
    on October 10th at 05:49 pm

    The government should FAIL to step in because the government has FAILED. Do you think the government is representing the people? Did you want this $700B (actually over $1 trillion) bail out?

  17. debmc said:
    on October 10th at 05:55 pm

    My problem with the bailout is separate from the FDIC issue, which I think was necessary for so many reasons. The bailout has other problems, such as proper oversight issues, distribution of funds, to whom, how, when, why and where, and the matter of funding. I’m not wild about the whole thing, but tell me your alternative, Shea.

  18. EugeneV said:
    on October 10th at 06:33 pm

    First of all, the FDIC coverage limit was not and is not linked to any inflation index. This means, 100K coverage was hopelessly outdated: back in the days when it was instituted, 100K was a lot more than it is now. Increasing the coverage is long overdue.

    Second, in your analysis you are looking at the average account balance, forgetting that under FDIC rules all accounts at a particular FI that belong to the same person or entity are considered as one. True average would be much higher.

    Third, let’s not forget that the top 1.6% of Americans [by net worth] actually provide a huge percentage of jobs for the rest of Americans. Providing stability for them helps stabilize the economy.

  19. Steve 2 said:
    on October 10th at 06:38 pm

    The whole thing is smoke and mirrors. Under the old rules, all you had to do to be fully insured by the FDIC (and we all know what a joke that is when the FDIC only has enough in their fund to cover 1% of the deposits they insure), all you had to do was put $100,000 in one bank, $100,000 in another etc. It really isn’t about socialism or capitalism. It’s about the government and big business, which may as well be one entity these days, lying and stealing. The media, which is owned by basically the same people that own the White House, Big Oil, the Banks etc, is equally as guilty for not challenging these lies. I agree, all this is going to do is generate more money for the banks and cause the rates banks charge citizens will rise to cover these costs. What a scam! Yes, they DO think we’re stupid.

  20. Brett said:
    on October 10th at 09:51 pm

    Yes, thank you Ian and David. Except that in David’s case I have to say that people with more than $100K in one bank should not be in all cases be considered not being careful. As a small businessman, I need $100K a week to meet payroll, and it is a mess to try to deal with several banks to keep my payroll and operating funds insured. And what do I do when I get a check for more than $100K, deposit it at two banks? Raising the limit helps business run more smoothly and also helps smaller banks service smaller businesses since they are less likely to feel they are stuck banking with the “too big to fail” megabanks.

  21. Pascal said:
    on October 11th at 05:07 am

    I feel that all the news and discussion on the topic is ignoring a significant loophole in FDIC’s insurance construct that might have a significant impact down the road. As you know, the insurance limit applies on a per bank basis. So if you had $500k, you could go to 2 banks and get your money fully insured. Similarily, if you had $50mm, you could go to 200 banks and be fully insured.

    There are several middlemen in the market place that exploit this construct to profit themselves. Examples are the brokered CD desks of several investment banks, The Reserve (whose money market funds were the first to break the buck), and Promontory Interfinancial Network.

    These middlemen’s business model arbitrages the credit rating of a US Government Agency (FDIC) and increases FDIC’s overall liability by increasing the size of insured deposits in the banking system. Wealthy and institutional customers benefit immensely because they are able to obtain Bank CD type rates on up to hundreds of millions of their money while taking US Government credit risk. Indeed, historically they have been able to pick up hundreds of basis points over Treasury rates.

    The increased liability to the FDIC is paid for by the banks in the form of higher FDIC premiums. Banks, in turn, pass on the FDIC premium cost as well as the cost that the middleman charges to their customers in the form of lower interest rates and/or fees. Again, wealthy and institutional customers have more leverage with banks and are more sensitive to rates and fees, therefore the cost is disproportionately transferred to the average customer. And if FDIC runs out of its fund, then the taxpayer will be stuck with the cost.

    The net result is that these middlemen significantly increase the liability of FDIC as well as transfer wealth to wealthy and institutional investors from average bank customers. Given that there are hundreds of billions of dollars in these programs, it is significantly increasing FDIC’s liability and creating a substantial burden for average bank customers that don’t keep more than $100,000 at banks.

    The middlemen also have a significant ‘moral hazard’ problem because they are likely to provide funding for banks that are most desperate and thus willing to pay highest rates in the market place. However, unlike normal credit extension, there are no credit checks or collateralization because the risk is borne by FDIC. Astonishingly, these entities (except for brokered deposit desks) are not even regulated by any banking regulator.

    This is another clear cut case of “Public Risk, Private Gain”. Anyone remember Fannie, Freddie?

    I wish this issue would be brought up in the discussions now because it has the potential to grow into a huge problem down the road.

  22. Cindy said:
    on October 11th at 06:51 am

    Wow. Where to begin? There are some valid points in the comments that have been made but the essence of what the author was trying to communicate seems to have been lost somewhere.
    Focus – government and business. There was a point made that this really isn’t about socialism or capitalism, but it is. It’s all about government intervention vs allowing a free market system to deal.
    To assume that government and big business go hand in hand and are sympatico has some validity. Government does profit from big (and small) businesses doing well via taxes. Big business obviously has more influence than a small business. But how did that business get to be big? Chance? Fate? Government intervention? No, profitability and success.
    The role of government should be to oversee, to ensure there is no abuse of the consumer. Abuse of the consumer by the government visa vis mandated loans that a consumer couldn’t afford is another issue, yet related to government abuse – not a business’s abuse of a customer and one that a business would never assume the risk of – that of a borrower of whom they KNEW didn’t qualify for a loan. To state that “big business” and government are in sync to do harm to the consumer is ridiculous. Our society would only benefit if government had to adhere to the same competitive standards as businesses in our free market system.
    Why would one assume that big business is evil and looking to do harm? They are looking to make a profit for themselves, their employees and thier share holders. And “they” are PEOPLE. Making a profit is not a crime. In a capitalistic society, it’s a GOOD thing. All of society benefits when businesses turn a profit. As long as there are no monopolistic abuses, competition will keep a business “honest” – why assume that a business has no moral compass and that the government does?
    Perhaps both government and business are “liars and stealers” – at least big business is brought down when this is proven. Where are the fail safes for our government?
    Interference from the government has to stop. What was the purpose of the FDIC increase? What did it “solve” in this current climate? Constitutionally, the purpose of the government is not to change the tide of the free market system, it’s to oversee that the lifeguards are in place. Government can’t save any one individual from drowning and they shouldn’t prevent swimming if somone does. The sole job of the government should be as an observer to ensure fairness …government should not be a player. With the bailout and the FDIC hike, they put themselves in a game where they shouldn’t be allowed to play.

  23. moonlitwake said:
    on October 11th at 09:59 pm

    I disagree with the analyst because you can not use “FDIC will ensure $100k” as your ultimate point. so far LEH is the only one really went under and it is not a commercial bank, even WAMU somehow found JPM as their buyer. if there is really a major commercial bank failer down the road, do you believe FDIC will have enough cash to pay you? maybe they will be able to do that eventually, by printing more and more paper somewhere. but that is not what you want either because that means your cash is less and less valuable.
    so don’t keep dreaming that as long as I am within $100k cap, even the bank fail, I will not suffer anything. apparently you will, in some way you may not even be able to tell. once we understand it, all the alternatives become almost similar, you pay higher fee to get a better sleep in the night, or you simply want to save several $ every month to risk a potential big surprise down the road. to be honest I am definitely going the 1st option, at least I can tell how much extra I need to pay. for the 2nd one, nobody knows what exactly the price is for everybody.

  24. John said:
    on October 12th at 01:08 am

    Here is my concern for savings accounts. If you had $100,000 or more in an account you were paid a premium interest rate. With the increase of FDIC insurance to $250,000 will the banks try to attract deposits with a premium rate at the $250,000 or more level and possibly adjust downward the rates at the $100,000 deposit level.

  25. FixThePig said:
    on October 12th at 01:11 am

    Raising the FDIC insurance up to 250k really doesn’t mean a lot for main street, but it does if we have a panic and mentality of “run on the bank”. I didn’t care for how the media made this sound like it was going to fix our financial crisis, but it should give some confidence; what is left of confidence is another question!

  26. Greenskeeper said:
    on October 12th at 06:50 pm

    The government should plug as many holes as possible, which would include the FDIC insurance which was not indexed to inflation.

  27. Hank said:
    on October 12th at 08:35 pm

    Just give every American 1 million dollars each. Economy problems solved!

  28. thomas said:
    on October 12th at 10:52 pm

    Why not allow PRIVATE INSURANCE ONLY
    PEOPLE CAN THEN PICK AND CHOOSE THE AMOUNT OF COVERAGE/PREMIUM WILLING TO PAY.

    THE GOVERNMENTS JOB WOULD BE TO DO WHAT THEY ARE SUPPOSE TO DO:
    OVERSEE THAT THE BANKS ARE LEGTIMATE IN THEIR HOLDINGS /ANNOUNCED INSURANCE COVERAGE

    WHAT A CONCPET!!

  29. InvestRequest.com said:
    on October 12th at 10:59 pm

    InvestRequest.com believes the increase of the FDIC to 250K is clearly a move to stave of a run on the banks upcoming especially with the commentary from the adminstration that there will be additional bank failures prior to the package taking full effect.

  30. eGruve.com said:
    on October 13th at 01:17 am

    All they need to do is send a check to all of us and this will surely solve the problem. I hope this ends soon.

  31. Johnny said:
    on October 13th at 02:23 am

    This is the stupidest post on this site, and I generally like this site. The FDIC ought to make all bank deposits insured and then do their job of oversight. Whoever wrote this has no clue about the psychology behind this matter nor the businesses that rely on bank deposits. Just think if you sold your home and was scared to park that cash in a bank until you decide what to do with it? There are many scenarios where this type thing can happen. That 1.6% of Americans composition changes all the time and this article simply shows ignorance, period.

  32. Hedge Fund Manager said:
    on October 13th at 05:30 am

    Uhhh I’ve ALWAYS been insured up to $250k…. Its called opening 3 bank accounts you morons.

    America is fleeced AGAIN because of idiots like Johnny

  33. Shea said:
    on October 13th at 03:13 pm

    The question is- Where do you draw the line? Raising the limit to $250,000 helps such a small number of people. What if you get a check for $251,000??? What in the world are you to do??? Keep it at $100,000 and have people pay for insurance (convenience factor) if you go over $100,000. The run on banks argument is weak. WAMU was going down anyway…a runaway from stocks maybe???

  34. Hank said:
    on October 13th at 04:27 pm

    Today there are rumors that the FDIC may go even higher then $250,000 and the government will guarantee all loans. The US government is trying to stay in lock step with the Europeans Socialist bail out plans to avoid people pulling out their money in American banks and parking it in foreign banks.

    It’s Hammer & Sickle Time

  35. goodoffer said:
    on October 13th at 05:33 pm

    That is great news if the Fed roll out unlimited FDIC Insurance.. The catch is it’s only for a defined timeframe, and it will expire.. Even the European banks have a timetable on it. Just enough time to get everyone over the hump.

  36. UseYourHead said:
    on October 14th at 03:24 am

    Ok people, starting thinking with your heads – *PLEASE*. This is exactly the reason why some people were buying houses for 500k in neighborhoods that were 1/2 that price 2 years earlier. Or buying stocks at 14000 and selling them at 8000. Don’t be a fool.

    Think with your head about what happens if this money pulls out and goes to places where it will do absolutely no good (t-bills, or worse yet overseas to banks that will insure it all). As this happens, banks have even less capital and have to deleverage [sell assets, cut lines of credit, provide less loans] even more.

    This doesn’t cost a dime — look at what has happened to some of the largest depository institutions in America. Their assets were MOVED to another bank — they will continue to do this [now they will move the regional banks] until the system is stable.

    If deposits leave, it creates another level of instability that we will have to figure out another way to deal with.

  37. Troopergate said:
    on October 14th at 11:22 am

    These analysis is baloney. $100K is nothing anymore and it should have been up’d LONG AGO. The only problem is that they only did it for 1 year. What good does that do?

    And as far as the chicken littles decrying “Socialism!” – OMG! All the police forces in the U.S. are socialist institutions right now! We must disband them all! Its just amazing how hearing a label can turn people into idiots.

  38. Lynn said:
    on October 14th at 04:03 pm

    the increase harms none and helps everyone. You are insured up to 250K whether you have $1 or 249,999 everyone gets insured. I have been blessed and worked hard and happen to be one of those wealthy americans. I agree that we are taking huge socialist steps and that is wrong. I (like many) just opened my statements this weekend and have lost 34% of what I had attained. I want to park my money in banks but it has to be safe. This cost the people nothing to increase the insurance amount.

  39. Ian said:
    on October 14th at 10:04 pm

    Shea, the problem with the article that you posted is that it politicizes the issue. The problem isn’t Jimmy Carter, President Bush or Ronald Regan. The problem is that banks failed to accurately assess risk. All the government can do about that is either go totally socialist or take a closer look at the loans on a bank’s books when banks are up for their annual exam from their regulator. Working at a bank where we just had our exam I can say confidently that they are taking a closer look at asset quality.

    The other end of the stick is dealing with the fallout from banks who forgot how to assess risk. I don’t know what else the government can do other than to socialize at least some of the losses. I hate it, and I wish we could just let everyone fail, but the bottom line is that the last time banks failed en masse and chaotically was in the 1920’s/30’s, and you had a depression. Increasing FDIC insurance is a way to deal with one of the symptoms of the gigantic mess.

    Finally, I find your dismissal of the case of Washington Mutual to demonstrate a lack of understanding about what is plaguing our economy at the moment. As much as anything else, it is a crisis of confidence at this point. Banks won’t lend because they are scared. The stock market is tanking because people are scared. Banks are failing because of 1920’s style runs. Very few institutions, if any, have been demonstrated insolvent at this point. Might Washington Mutual have failed even if there wasn’t a run on uninsured deposits? Possibly, maybe even likely, yet in no way guaranteed. The point is that the immediate cause of failure was a run on uninsured deposits that may not have happened if the FDIC limit was higher. And the scary thing is that in this environment, a rumor might be able to destroy even a healthy bank. A higher FDIC limit may be able to head off that kind of situation.

  40. Next President said:
    on October 14th at 11:43 pm

    You people crying about raising the limit should maybe look in the mirror sometimes.

    Either that or open the door on the box that surrounds your head(s).

    How about a working guy like me who will never have over 10,000K to invest in any bank, etc?? Do you think that I like paying higher banking fees so that the FDIC can cover all of your investments up to 100,000K??

    I would like to see it dropped to 10,000K to lower the costs to the banks and the fees paid by folks like myself.

    What do you all think about lowering the coverage limit, eh? Should be a great idea using your lower cost to the consumer theories you all seem to be trumpeting….

    A real face has two sides, not just one.

    They raise the limit, you cry.
    If they were to lower the limit, you’d cry.
    It’s nice the world for you revolves around your own personal existance so long as it suits your needs, of course….

  41. Hedge Fund Manager said:
    on October 15th at 12:03 am

    Yeah dude, I have over 200k, but I dont need any stupid laws to get fully insured. ALL I DID WAS OPEN 2 BANK ACCCOUNTS

  42. Travelinator said:
    on October 15th at 03:15 am

    Hey ‘Hedge Fund Manager’ guy

    Get a new screen name, I think you guys are now more hated then Bin Laden and lawyers.

    PS, all you have left is 200k? ahahahaha

  43. rescuejag said:
    on October 15th at 04:13 am

    Mr. Wu is skewing the data. Yes. Only 1.6 % of FDIC deposits are over 100,000 – - that is the nature of the system. If you have 300,000 do you put in one bank account and have it insured for 1/3 of value ($100,000). No, smart individuals spread it accross multiple banks, or multiple accounts with diffenent titles (i.e. joint, in trust for, etc) thus maximizing insurance to the full value. What Mr. Wu should report on is % of individuals with total savings of 100,000 or more in FDIC accounts. The data Mr. Wu reported does not provide this insight and all it really tells you is there is 1.6% of accounts that would not be insured for full amount.

  44. freetrader said:
    on October 15th at 06:37 am

    I think Johns Wu needs to bone up a little bit on both his math and his logic. Obviously, if the FDIC insurance limit is $100,000, why would anyone keep more than $100,000 in an insured bank account? You would spread the cash amonst several accounts, or chase higher returns by putting the excess in a more risky account. The purpose of the insurance limit increase is to allow Americans who do not want to risk their money to find a safe haven for it. On the other hand, if Mr. Wu really thinks that anyone with more than $100,000 is “rich”, then he is a fool; a middle class American couple needs to accumulate anywhere from $500,000 to $2,000,000 in order to retire comfortably, and if they are close to retirement, they are going to want a safe place to put the money – the alternative is stuffing it in a matress.

  45. Ethical Minority said:
    on October 15th at 12:12 pm

    You may still have a point, even if you use your statistics correctly. You did not take into “account” (no pun intended) that many people have multiple accounts under $100,000 in the same bank. These multiple accounts could then add up to over $100,000. However, many of these are joint accounts, and with 1 or more beneficiaries, which would increase the amount of FDIC insurance in multiples of $100K.

  46. Shea said:
    on October 15th at 03:17 pm

    Ian, first I did not write the article…I wish I did because I think it hits on 2 critical points. I agree with you that banks failed to assess risk. I think you’re failing to realize how we got to this point. In 1977, President Jim Dandy Carter passed The Community Reinvestment Act of 1977. This forced banks to lend to people with poor credit and low income…if you don’t agree then please explain the CRA rating to everyone.

    Banks haven’t had to assess risk…why would they? If I gave you a loan for $1,000 and then sold that loan to someone else is it my problem anymore? If I bought that loan and sold it to two other people…do I care about anything except making more money? There’s no accountability in the banking system. Back in the “Old School” days banks held on to all the loans they produced…thus making money (or losing money) on what THEY produced.

    Where do banks get money to lend “good loans?” It’s the same place where a lot of the bailout money is coming from. It’s the money we’re using to save banks from making bad loans…which also means this slows down lending for good loans. This is slowly ripping off the bandaid…not one thing we’re doing will prevent this from happening again. The annual exams are a joke and won’t prevent this from happening again.

    Do you agree banks need to have more accountability? Forget the tests…forget the government…it’s your loan officer…it’s your underwriter…it’s your processor…so it should be YOUR loan. Letting these banks fail won’t crush us…there’s loads of liquidity out there. People that work smart will reap the benefits…people that work hard (some of you and I) won’t get that shaft when people get greedy. Let’s rip the bandaid off and takes some accountability for our decisions!

  47. Bill said:
    on October 15th at 07:25 pm

    Its about time they raised the amount…….it would have helped a lot of people at IndyMac a bank which wasn’t even on the watch list. The bank run caused them to go belly up……must have been a lot of people in the 1.6% range because they said a billion dollars was not insured…by the way what is the status of IndyMac anyway….anyone out there know??

  48. ameera said:
    on October 15th at 07:40 pm

    I read all of the comments with interest.

    First of all, if what smart people were doing all along is diversifying their funds in multiple CDs so that their money would be covered by the FDIC and that accounts for the 1.6% low number of accounts with over $100,000 then please explain to me again why there was a need to raise the FDIC coverage to $250,000?

    Wouldn’t a simple all post bulletin to the general public to put their funds in multiple accounts have alleviated the fear and prevented a run on the bank?

    The wand this article speaks of, along with purposely created fear ALREADY forced into a dishonest war, passed an unethical, unconstitutional act call the PATRIOTIC ACT and now it has cause mass panic and lack of confidence in our financial system.

    Now the government is proposing to become shareholders in our major banks.

    How bad would it have to get before everyone opens their eyes?

  49. EC said:
    on October 15th at 09:55 pm

    The new FDIC limit ($250,000) expires Dec. 31st 2009. Check out bloomberg.com and do a search for “FDIC insurance limit”.

  50. Travelinator said:
    on October 16th at 03:24 am

    When the short sellers get done by the end of this year the only bank that will be left is the Federal Reserve. Also the short sellers will have managed to drive out almost all public companies.

    Here is the irony, all those grease ball shorts will be stinking rich but there will be no where for them to park their riches and no where for them to go be serviced for the new lavish life styles they now could afford because all the businesses are gone.

  51. GEORGE ANDREWS said:
    on October 16th at 02:58 pm

    Private accounts can be structured to to cover multiples of $250,000.00 within the account. Business’s get $250.000.00 maximum, regardless how the account is structured. In the past, the banks would be happy to handle a “business” account and and not have to pay a dimes worth of interest. Today business’s can put money in an interest paying money market account or buy CDs with excess cash. banks now pay for the privilege to lend my capital for a profit. I am not sure when this changed, but I feel it’s been within the last eight years.

  52. Ian said:
    on October 16th at 03:37 pm

    Shea -

    Apparently you didn’t read my comments. #1 – CRA is not responsible for bad lending practices. Period. I am a residential loan officer at a bank, and CRA has never caused us to make a bad loan. As I said above, if you simply lend in the areas you collect deposits in, you are in compliance. #2, you are partially correct that banks stopped assessing risk because they sold their loans. However, eventually they went all out and started keeping some of those loans on their books as well. I work as a residential loan officer for a bank that keeps every single loan we make, so we never stopped accurately assessing risk. I hate the bailout because it is foregoing (postponing?) punishment on those who have earned it, however, credit markets are so locked up at this point that government has to step in or healthy companies will begin to fail. Look at GE, they are a great company but were unable to tap credit markets and had to go to Buffett just to pay their bills. That is what I call systemic failure of our financial markets. That is why I believe that stupid and annoying bailout is necessary. As for FDIC insurance, the original point of the whole comment, my contention still stands that depositors have demonstrated their ability to assess risk in the failure of WaMu. They afraid the bank would fail, so they withdrew their uninsured deposits. They knew the insured deposits were safe, so left that money in. I experienced it in my retail branch helping people make sure their money at my bank was fully insured, and by taking hundreds of thousands of dollars from WaMu from people specifically citing FDIC insurance reasons.

    Finally, greater accountability for banks. If we are going to bail them out, we need to see greater accountability. The money they get should come with strings attached. Maybe a more frequent visit from their regulator, I don’t know. However, healthy institutions like mine should not be subjected to further government oversight. It is a giant pain in the neck, and we have consistently demonstrated high asset quality and have skirted everything other than a slowing economy.

  53. Daisy said:
    on October 16th at 04:56 pm

    This article is a bunch of crap and is misleading. You’re manipulating the statistics in an attempt to scare the average Joe into believing the government is again trying to help the wealthy. I’m guessing your’re right up there with some other idiots blaming Wall Street for the economic mess too because you don’t actually understand what is going on (subprime borrowing taking out loans they never intended on paying back!). Let me guess….you also think its “patriotic” for people making over $250k to have their tax rate increased significantly in effect redistrubuting wealth.
    Increasing FDIC insurance coverage does not help only 1.6% of the population. It also helps people who have multiple smaller accounts at the same bank that add up to over $100k. Also crap…98.4% of current deposit ACCOUNTS may well be insured but that does not mean 98.4% of deposits DOLLARS are insured. Clearly you can see that only half of deposit DOLLARS are insured so increasing FDIC insurance to $250k or higher helps significantly more than 1.6% of the population. The number of accounts is irrelevant. How many people have accounts with minimal and insignificant balances simply because its easier than bothering to close the account?? Also- the increase in insurance cost to the bank when spread over all its deposits is really insignificant. I’m willing to pay an eighth or quarter of a basis point for the convenience of keeping $250k at one bank instead of having to spread it over multiple banks to ensure it is FDIC insured. I can go on and on about the flaws, omissions, etc in your piece but its a waste of my time.

    To “NEXT PRESIDENT”….I’m sorry that you’ll never have more than $10k to invest in any bank but as with many other people I’m sure that is a function of the choices you made (or lack there of). I’m sure that most people who put the effort in to educate themselves and acquire valuable skills have over $10k to invest. I’m tired of hearing of the “working people” who can’t seem to afford everything they want or can’t afford to raise their kids. People make money according to the education/skills they CHOOSE to acquire. Yes…CHOOSE to acquire. There is a reason people spend years in college/graduate school and choose to have children only once they are finanically stable enough to be able to afford such a luxury and as a result don’t have to complain about not having money. ANYONE that grows up in the US has the opportunity to make a good living if they choose to. Its unfortunate that you perhaps made poor choices and now say that as a “working guy” you will never have more than $10k to invest but I don’t feel sorry for people who CHOOSE to build a poor foundation for their future.

  54. Travelinator said:
    on October 16th at 07:29 pm

    If Mr. Wu wants FDIC to protect his new fortunes from this blog:

    - FDIC $250,000 means Mr. Wu needs to split his money into 60 banks.

    - FDIC $100,00 means Mr. Wu needs to split his money into 150 banks.

    I wish I had such problems.

  55. Johns Wu said:
    on October 17th at 12:58 am

    OR you could get CDARS (www.cdars.com) and have millions in FDIC insurance with just 1 bank.

  56. Shea said:
    on October 17th at 04:56 pm

    Ian-

    CRA was the start…read this-

    http://pallante.typepad.com/we_the_cared_for/2008/09/governments-social-engineering-a-key-to-the-credit-crisis.html

    If you have other facts I’m all ears. It’s obviously not the only reason but was the first bad decision in a mile long line of bad decisions. “In compliance” is a funny term…in compliance doesn’t mean good decision.

    As you can see so far, this “Sell Out” hasn’t freed up the credit markets. The government will have to come in and force your bank to start lending…that was the purpose of the “Sell Out” wasn’t it?

    Daisy-

    It seems you’ve studied the data and have the numbers to back up your arguement. Could you share them with us? As the author said, averages can skew the analysis…but lets not forget the point here. Is banking a service or a right? Are banks businesses? I should not be paying MORE for OTHERS to feel security. Am I not being patriotic? If YOU have $250,000 + that you want to keep in the bank then YOU pay insurance for that SERVICE.

    I agree that everyone in this country has the chance to make money and have $250,000 if they choose to. You contradict yourself when sarcastically saying “Let me guess….you also think its “patriotic” for people making over $250k to have their tax rate increased significantly in effect redistrubuting wealth.” The “Upper Class” should not be paying higher tax rates to help the “Middle Class”…and people should not be paying higher rates/fees so people (other than themselves) can keep $250k + with one bank…would that be patriotic?

  57. NancyS said:
    on October 17th at 09:02 pm

    Travelinator writes:
    “FDIC $250,000 means Mr. Wu needs to split his money into 60 banks.
    - FDIC $100,00 means Mr. Wu needs to split his money into 150 banks.
    I wish I had such problems.”

    Just because you don’t have $100,000 or more, doesn’t mean that those who do are wealthy. Imagine being 70, living on a fixed income, and only having $100,000 to your name. I’m not talking about an IRA, but I do not consider $100,000 to be a large sum of money. If someone gets sick and doesn’t have insurance, that money would be gone in a flash. If someone loses his job or becomes disabled, that money can disappear quickly. This new limit is very helpful because the smaller banks can get more business. It might change the “bigger is safer” feeling which is good for competition.

    By the way, over the past several years, seniors have lost millions in retirement savings because the interest in an account often exceeded the $100,000 limit. They were not rich by any means. It’s always been very easy to be insured for a lot more than $100,000 by asking the bank rep to add the title “ITF” (in trust for) or “POD” (payable on death) to an account with a list of qualified beneficiaries. Unfortunately, many people were not aware of this, since they never bothered to read the FDIC regulations or even ask about them. That;s what I don’t like about large banks. A personal banker would red flag such an account or advise the depositor of his limits. Unless you’re an only child with no living siblings, parents, children, grandchildren or a spouse, then you’ve got to have at least a couple of qualified beneficiaries. When you list a beneficiary that will inherit your money if you die, your account becomes a revocable trust which, unless you drop dead, means absolutely nothing, but it increases the FDIC coverage substantially. I have every penny in a POD account, including my $500 checking account, so it doesn’t go into probate if I die. Doesn’t mean I’m wealthy, just responsible.

    Anyway, the Mr Wu you are talking about probably would use a CDARS partner so he wouldnt run around so much.

    Shea writes: “Debmc, it’s not just helping 1.6% of American’s, it’s hurting ALL Americans. How are the banks going to pay for the extra insurance? ”

    Obviously you aren’t aware that there has been unlimited coverage at many banks for years. In Massachusetts, for example, every chartered savings bank or cooperative bank has SIF or DIF. Mabe that’s why the interest rates in MA are so low. (I have relatives in MA) but you can always open up an account elsewhere by mail or online if the bank allows it. I live in FL and have had CDs in Nebraska, Ohio & Iowa. FDIC is private, so I don’t know why everyone keeps saying we are paying for the increase with our taxes. It is not funded by income tax, but by insurance premiums paid by the banks. The extra desposits many banks will enjoy might offset the costs. Right now the increase is only until Dec 2009. I assume that’s why I’ve seen a few 14 month CD specials.

  58. Travelinator said:
    on October 18th at 01:48 am

    Hey Hedge Fund Manager, Enjoy your riches you treasonous pos. What goes around comes around weasel. May every cancer known to man ravage your body and your family. You short selling slime balls are also a large reason for the mess we are in with your slimy rumors and piling on tactics.

  59. J said:
    on October 20th at 06:17 pm

    1) All insurance should be privatized then people could pay for only what they need/want . sound too “American” for the Obamaites out there?? :)

    2) Dont ever ever be down on the wealthy IF YOU LIKE MONEY/FREEDOM

    It is the wealthy who are the last to be afffected in downturns, RIGHT? RIGHT!

    So they are the only ones that can keep all others employeed.

    We know everything rolls downhill and I GAURANTEE YOU THIS

    who do you think has made more millionaires in this world, THE BILL GATES OF THE WORLD OR YOUR LOCAL WELFARE MOM ON HER 5TH BABY?

    stop the nonesense and grow up America

    MONEY = FREEDOM
    2 THINGS ANY SANE ( this MIGHT BE THE OPERATIVE WORD) person wants

    All others who talk down the wealthy etc at best HAVE NO CLUE or are afraid that others are “PASSING THEM BY” AND DONT HAVE THE CONFIDENCE n themselves

    Lets not let the tail wag the dog anymore in this country, YOU SEE WHAT THAT REALLY GETS US!!

  60. soybean1333 said:
    on October 24th at 01:32 pm

    Your an idot!!!!!!! You are ignoring your own chart. 1.6% of the accounts have 50% of the total money. If this get jerked, what happen to the 98.% of the little guys?

  61. Professor said:
    on October 31st at 05:16 am

    Well the 250k was nice, but the real improvement was in gettng rid of who was a qualified beneficiary. After losing 800k in stocks I am happy that my 2m is now insured.

  62. Mark said:
    on November 5th at 01:03 am

    Take a look at this post. Don’t worry, the supposed 1.6% don’t have time on their side.

    http://www.crackinsurance.com/2008/11/04/fdic-insurance-sunset-provision/

  63. Joe said:
    on November 7th at 08:51 am

    The data presented is pretty meaningless. Most wealthy people have already spread their cash among different institutions so that it is insured. More likely is that the 1.6% are small businesses, and if they lose their cash will file bankruptcy and lay off workers

  64. Mark said:
    on November 11th at 06:46 pm

    The analysis is so myopic in view it’s almost hilarious the article was even written. As a person who happens to have more than $100k in cash, I would sure NEVER have let more than $100k be in any one account at a given point in time, so I guess I’d be considered in the bottom 98.4% of account holders.

    Secondly, if you have any clue how banking works and what’s going on in the marketplace you’d realize that keeping high value accounts in bank is CRITICAL to running a bank. Banks make money (traditionally) by taking borrower deposits and loan them back out. If everyone pulls their capital out (especially those w/ more to pull out) they have less to lend. Less to lend to homeowners, commercial property owners, and business owners. Everyone knows the easiest way to boost returns is to BORROW and LEVERAGE what cash you have. No borrowing = reduced returns = reduced risk taking and GROWTH.

    The last point is the fact you point out this doesn’t help the middle class. Same myopic vision that our president elect has. If anyone really thinks that taxing small business owners who make over $250k a year an additional 4% ($10 for every $250k they make) doesn’t come RIGHT OUT OF THE POCKETS of everyone else – you’re crazy. Like small business isn’t going to 1) raise prices to boost profits and makeup this shortfall or 2) cut expenses (employees). Who’s then going to be out of a job – the ‘middle class’.

    Take the blinders off and let’s see the bigger picture. The $250k increase has incentivized me to consolidate accounts and given me more confidence my HARD EARNED (key word EARNED) capital doesn’t dissappear in a bank collapse). I’ll now leave these $$s in an account and allow the bank to lend them out (to small business and homeowners). The whole LIQUIDTY CRISIS / CREDIT CRUNCH has EVERYTHING to do with banks NOT LENDING money. This move helps increase that ability. 100% off base article, sheesh.

  65. Sam said:
    on November 13th at 04:54 am

    I don’t think the point is to save the 1.6% Americans with higher FDIC insurance or not. The point is that this kind of news makes everyone feel safer. Everyone has talked about this $250K limit increase. The goal is not to create mass panic and widthrawals because of the news of bank failures.

  66. Bankaholicaholic said:
    on November 13th at 10:35 pm

    LOL just reading these comments and hey Johns, I think you should start moderating them. You run a respectable business and need to make sure your brand reflects that. One nice thing to add to your site may be a reputation system. It will keep the discussion shall we say more civilized.

  67. Jeff said:
    on November 17th at 04:46 am

    The article focuses on the wrong number. Slightly more than 50% of the money deposited are in accounts with more than $100,000. So if the people with those accounts (presumably the 1.6% mentioned) get nervous and withdraw their uninsured money, then 1.6% of the people can create a run buy withdraw more than 50% of the funds.

    The goal was to prevent runs on banks. FDIC insurance was created to create confidence in people so that runs on banks don’t happen.

  68. Richard said:
    on April 24th at 08:19 pm

    The increase in insurance was not implemented to benefit the wealthy but rather to avoid the “wealthy” withdrawing their money from the banks. It would be a very unwise person who keeps money in a bank account paying negligible interest if that money is at risk (i.e., not insured). Flow of money out of a bank to a safe deposit box or home safe would create a “run on the bank” leading to failure. That is what the government is trying to avoid by increasing the limits.