Tuesday, November 21st, 2017

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FDIC & Other Financial Protection

The FDIC logo displayed in your bank’s window is about as easy to ignore as the dust bunnies in the corner of your bedroom.  As long as your monthly statements show a balance that coincides with the amount it should be, is there really any reason to question your bank?  Up until recently you’ve probably thought that financial institutions are the safest place to keep your money.  But with bank failures and collapses you need to know if anyone is watching your money. 

What is the Federal Reserve?
Established by Federal Reserve Act of 1913, the Federal Reserve is the United States central banking system.  It addresses bank panics and manages the nation’s money supply; The Fed, as it is often called, regulates interest rates for banks.  You’ve probably heard of Ben Bernanke, the current Chairman of the Federal Reserve Board of Governors (FRB). He seems to be in the news almost daily.  Though the Fed oversees banks, in general, it does not protect your money.  So who does care about the safety of your assets?

How is your money protected?
The Great Depression of the 1930s caused people to wake up and create financial protection.  The Depression though great in magnitude, was not great, in any wonderful or terrific way.   During the years 1929 to 1933, approximately 9,000 American banks suspended operations.   Consequently, depositors lost nearly $1.3 billion because of the collapse of the federal financial system. 

The Banking Act of 1933 was a bill signed by President Franklin Roosevelt during the peak of the Depression; The Banking Act established the Federal Deposit Insurance Corporation (FDIC).  Back in 1829, a century before the Depression, New York State offered deposit insurance for banks only in that state.  Federal deposit insurance first surfaced around 1886.  Prior to the FDIC, neither federal nor state deposit insurance was particularly effective.

Initially, FDIC protection safeguarded the first $25,000 of your cash, an amount that was considered to be a fortune in those days.  During early years of the FDIC, banks and individuals expressed caution.  But by 1937 the FDIC appeared to be working; it handled approximately 370 bank failures, mostly small banks, between 1934 and 1944.  The FDIC has expanded and had some several minor revisions over the years.  During the 1960s, banking became more aggressive and more liberal, especially regarding branching.  Today, your average local bank seems to have numerous branches.

The FDIC has survived several recessions since its inception over seventy-five years ago.   Recently FDIC protection was $100,000.  During 2008, as part of the Emergency Economic Stabilization Act, this amount was temporarily increased to $250,000.

The income of the FDIC fund is collected from insured banks; this is not unlike how your own personal insurance operates, such as your auto insurance.   It’s very important to note that though the FDIC typically insures cash, checking, and certificates of deposits (CD), it does not protect stocks, bonds, mutual funds, money market mutual funds, or annuities.  The FDIC has a watch list.  In these erratic economic times, it would be prudent to peruse this very informative website to be sure that your bank is not listed.

Are credit unions safe?

The National Credit Union Association (NCUA) regulates credit unions.  National Credit Union Share Insurance Find (NCUSIF) insures up to $250,000 of your money at credit unions.  All federally chartered and most state chartered credit unions are insured, but not all credit unions are insured.  Be sure to see in writing that your credit union is protected.  The NCUA website is very helpful for understanding credit unions and their safety.

 It’s not just a coincidence that the FDIC and NCUSIF are similar, especially in the amount of your money that they insure.  The Federal Financial Institutions Examination Council (FFIEC), established in 1979, establishes regulations to keep deposit insurance uniform.  Each is its own entity but answers to the same regulating body.

Are your stocks and other types of investments insured?
Wouldn’t it be nice if you knew that your stocks are insured?  Suppose some guy with a name like, say, Bernard Madoff, performed a disappearing act with your investments; would an insurance check promptly arrive in your mailbox?  Sorry to say, but those kinds of investments are not protected by FDIC or anything like it.  The good news, sort of good news, is that the Securities Investor Protection Corporation (SIPC), established in 1970, though not insurance, works with court appointed trustees in missing asset situations to help recover missing funds.

You’ve worked hard for your money.  Make sure you keep it in a financial institution that insures it.  You don’t want to become a statistic during a volatile economy.

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One Response to FDIC & Other Financial Protection

  1. Debra Karplus, author says:

    I look forward to reading your comments.

    Debra Karplus, author

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