Jan-2013: FDIC Stops Fully Insuring Deposits. Bank run?

[rambone]

Thoughts on this? Could there be a run on banks?

US Bank Run Imminent as FDIC Expanded Deposit Insurance Ends Dec 31st

As of January 2013 the FDIC stops offering 100% coverage for all insured deposits. That amounts to $1.6 trillion in deposits, 85-90% deposited with the TBTF mega banks. Once the insurance ramps back to $250,000 the FDIC risk amelioration offered to large depositors will cause them to flee from the insecurity of the much reduced FDIC coverage. This money will rotate immediately into short term Treasury securities. The treasury, in order to handle this flood of money, will immediately offer negative interest rates. This financing will resemble the .5% negative interest rate offered by the Swiss and Germans on the funds flooding to their banks from Spain, Greece and Italy.

 

[HeadlessRoland]

Bee Ey En Kay Double R - U - N: Bank Run!

 

[Double T]

Bee Ey En Kay Double R - U - N: Bank Run!

My dyslexia rears it's head when I am suuuuuuuper tired.

 

[CathyInBlue]

It's a play on the song Beer Run.

Bee, double-E, double-R, U, N. Beer Run.
Bee, double-E, double-R, U, N. Beer Run.
All we need is a ten and a fiver,
A car and a key and a sober driver.
Bee, double-E, double-R, U, N. Beer Run.

 

[KLB]

A run by those with more than $250k in deposits?

 

[jeremy]

Not worried....

Half of nothing, is still nothing....

 

[Blackhawk2001]

A run by those with more than $250k in deposits?

Although it's not a problem I'm ever likely to have, I'd guess a prudent person would limit deposits to any one bank to that amount which is covered by the FDIC.

 

[jeremy]

Who cares...

The World ends in December anyway....

 

[ArmedProgrammer]

Yawn... brought to you by a place trying to sell you silver.

These guys have predicted 10 out of the last 2 crashes...

Is our economic system in trouble? yes... Is this it? Uhhhh... no...

 

[hornadylnl]

Although it's not a problem I'm ever likely to have, I'd guess a prudent person would limit deposits to any one bank to that amount which is covered by the FDIC.

FDIC is $250k. I don't think a prudent person would put near that much in a single bank. I had accounts at 4 different banks at one time.

 

[downzero]

I don't know why someone who had a million dollars in cash would have it in an FDIC-insured account anyway. The loss in interest alone would destroy the money's value over time.

 

[HeadlessRoland]

I don't know why someone who had a million dollars in cash would have it in an FDIC-insured account anyway. The loss in interest alone would destroy the money's value over time.

Correction: holding that much currency in reserve as dollars would destroy its value over time.

Dollars: useful for heating your home, if you have enough.

 

[Lex Concord]

Upon reading the original FDIC page, I don't reach the same conclusion.

What is ending is the insurance of Temporary Unlimited Coverage for Non Interest-Bearing (Transactional - the definition is on the FDIC page) Accounts. This says nothing about reducing the $250,000 per-account insurance provided by the FDIC.

That said, the real concern here is the nature of the FDIC. Much like fractional reserve banking in general, there is not nearly enough to cover the risk. Banking requires 10% reserves on deposits.

The FDIC, on the other hand, has far less.

According to the Federal Reserve Bank of St. Louis, total savings deposits at all depository institutions is about $6.5 Trillion. The FDIC's balance sheet has about $22 Billion as of June 2012.

Let's be conservative and say that only $4 Billion of that is in Banks (NCUA covers credit unions). Doing that math, we find that the backstop for the nations banks has under .6 cents for every dollar deposited.

That $22,000,000,000 will cover the failure of some banks. Often, when banks fail, other banks will acquire the deposits, assets, and liabilities; it doesn't peg the FDIC fund for the full amount of the institution's deposits. This is where size matters, however. CITIgroup alone holds $322 Billion in deposits. Chase holds around $1.2 Trillion in deposits.

If one of the giants fails, the FDIC couldn't put a dent in it, and what bank or group of banks could absorb those balance sheets?

Too big to fail? Imagine the chaos if just one of these did.

That's why TARP happened in 2008, and that's why it will happen the next time the chestnuts are in the fire. I doubt it will be long.

Next stop, hyperinflation or default. Both, maybe?

There could definitely be a bank run, but not because of this.

 

[rooster]

Seems to me they are trying to encourage investing in the market instead of hoarding cash......

 

[RockofStrength]

Seems to me they are trying to encourage investing in the market instead of hoarding cash......

I'm no banking/economic expert by any means, but if the banks see a mass exodus of money wouldn't they collapse the economy by being unable to loan sufficient funds to businesses, home-builders etc?

 

[rooster]

The increased investing would cause less of a need for loans. Some of the money would ultimately end up in being invested in the banks through stocks and bonds.

 

[HeadlessRoland]

Next stop, hyperinflation or default. Both, maybe?

Mind if I quote this?

 

[WWIIIDefender]

It doesn't matter. They never could garruntee that anyway. It just made people feel better.

 

[CarmelHP]

It doesn't matter. They never could garruntee that anyway. It just made people feel better.

Absolutely correct.