FDIC Increases Extended Through 2013
One of the earliest and boldest moves made to help stabilize the banking system when people began to realize how bad things were for financial institutions was an increase in FDIC coverage from $100,000 to $250,000 in most accounts. This was a temporary increase, and the FDIC just announced that they have extended the higher coverage through December 31, 2013.
FDIC coverage is applied in the case of a financial institution going into default for several different types of accounts. The amount of coverage is based on the number of owners on the account, so a joint savings or checking account at an FDIC insured institution will be insured for up to $500,000. These rules also apply to insured IRA accounts, employer retirement accounts, trust accounts, and several other types of accounts that are listed at www.fdic.gov.
The higher coverage limits are intended to support a high level of confidence in banks that are desperate to keep their deposit bases intact. Early in this recession, several banks failed after customers made “runs” on those banks to withdraw funds. Indymac Bank, based in Southern California, was mentioned by a government official as a bank that was “at risk” financially and over the following three days, bank customers withdrew over $3 billion, lining up around bank branches to withdraw funds. No wonder the bank went under!
Over the past several months as financial institutions have continued to collapse and fail, the FDIC has had to make good on a lot of promises to repay customer deposits. The reserves of the FDIC have been drained to the point that they have had to ask participating banks to refill their coffers. Banks have complained but they have little choice, since the promise of insurance is the only thing keeping many bank customers in the boat right now.
The extension of higher FDIC limits gives financial institutions the time they need to restore confidence in their ability to remain solvent and return to profitability as the economy below them stabilizes. Allowing the higher limits to expire could have led to another run on banks-the last thing they need right now!
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