Very few people – when they open up a bank account – look at whether or not a bank is FDIC (Federal Deposit Insurance Corporation) insursed. Do you ever notice this little sticker on the front of the door when you walk into the bank? Probably not. More than likely you choose your bank because it was close to your home or your friends recommended it. But have you looked at whether your bank is FDIC insured? Especially, if there is news headlines like this stating “runs on the Greece banks have begun” or “Biggest Greek bank warns of dire euro exit fallout.”
Since Greece is going through a lot of turmoil in their involvement with the Euro it is an appropriate time to look at whether your bank is FDIC insured. But first lets look at a brief history of how the FDIC came about.
The FDIC was started on June 16, 1933, by President Franklin D. Roosevelt during the height of the Great Depression to help keep confidence in the banks. Individuals, prior to 1933, had no insurance as to their deposits in the banks, and could not be guaranteed that the banks would have available cash to pay their deposited money. The banks had a fraction of their investors cash readily on hand, because it had all been lent out to individuals & corporations in the community.
The FDIC insurance thus forces banks to have at least 10% of their client’s cash on hand at any time to remain in good standing with the “temporary government corporation”. Banks today fall into the following five categories based on their capital ratios.
- 10% or greater – Well Capitalized
- 8% or greater – Adequately Capitalized
- Less than 8% – Undercapitalized
- Less than 6% – Significantly Undercapitalized
- Less than 2% – Critically Undercapitalized
All FDIC banks are regularly audited to ensure they comply with these regulation limits or risk getting shutdown.This even happened to one of our local Omaha banks, Mid City Bank, in November 2011. The Mid City Bank closure ended up costing the FDIC about $12.7 million, which is paid by the premiums of all FDIC insured banks. For a complete list of all failed banks since October 1, 2000 visit the FDIC Failed Banks List.
Interesting Fact: Since 2000 there has been 465 bank failures. 428 of these failures have occurred since September 2008! That is an alarming statistic, which I really never realized!
Does FDIC insurance really matter?
The government created the FDIC government corporation to provide “trust” in our financial institutions, because of all the bank runs during the Depression. People would have much rather earned 0% interest under their bed mattress than trust their local mom and pop bank. Once the government intervened, it slowly helped bring bank customers to make deposits that banks could lend out in mortgages and other lines of credit.
The question that needs to be considered today though is…”What if the government fails?” What happens to my FDIC insurance if the entire country fails? I pose this question, because with Greece on the verge of either default or exiting the Euro it makes me wonder about the US’s sustainability. Do you ever think about this?
Ultimately, if I look at a where the US is headed fiscally with the government owing $15.7 TRILLION it looks unstainable. Recently we just passed 100% GDP to Debt Ratio, which is a tipping point that would be hard to recover from. What that means is that our interest payments alone will soon be unsustainable compared to the Gross Domestic Products we quantitivately produce. So what does that mean for you and your family? My advice to you…
Financial Tip: Create no single point of failure for your family’s finances! Have multiple banks accounts at different FDIC insured banks.
Recently, my family and I opened up a second checking account for this very reason. We didn’t want to look back (if there is another depression/bank run) and think…”why did we have all our money in one bank?” What if your local bank fails? How quickly could you get access to your money? If another Great Depression happened again would you be able to survive with cash on hand?
Is my bank FDIC insured?
Ultimately though, the first question you need to ask yourself before opening a checking or saving account is…“is my bank FDIC insured.” The FDIC offers a great search tool on finding out if your banks is covered or not. Check it out! It might help you out like it did the Mid City Bank customers in Omaha.
I don’t know if many of you have had a chance to read a lot of the headlines on Greece’s debt problems, but my assumptions are that by June 17th major events as to the future of Greece and the Euro will be decided. My questions to all our readers are:
- Have you been reading the headlines about Greece? Are you concerned?
- What do you think will happen if Greece defaults?
- What do you think will happen if Greece leaves the Euro?
- What are you doing to prepare if there are problems in the financial markets?
I’d love to hear from our readers!