FDIC Deposit Insurance And WaMu
By Pinyo • Sep 19th, 2008The past few days have been rough for the financial sectors. As the AIG crisis temporarily subsides, our attention turns to the giant retail bank, Washington Mutual (WaMu). There are news and rumors indicating that WaMu could be the next victim of the current credit crisis — and it won’t be pretty if it fails.
What Does FDIC Deposit Insurance Cover?
First, you should know that not all banks are FDIC insured (FDIC stands for Federal Deposit Insurance Corp). If your bank happens to be one of them, your best bet is to take your money elsewhere — ING is my choice at the moment. If your bank is FDIC insured, the combined amount in your savings, checking, NOW, money market accounts, and CDs are protected up to $100,000 per depositor per bank; and up to $250,00 for certain retirement accounts. There are a few exceptions that you should read on the FDIC INFO web site.
The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if these investments were bought from an insured bank. But you are not completely out of luck here either:
- Your stocks, bonds, mutual funds are covered by the Securities Investor Protection Corporation (SIPC), and
- Your life insurance policies are backed by Guaranty Associations or Guaranty Funds at the state level.
Additionally, the FDIC does not insure U.S. Treasury bills, bonds, or notes. These are backed by the full faith and credit of the United States government.
If your bank fails, FDIC will step in and make sure your money will be there. The FDIC pays insurance within a few days after a bank closing either by establishing an account at another insured bank or by providing a check. However, it may takes longer if the failure is a large and messy one.
What Happens If WaMu Fails?
First, let’s hope it does not because we really don’t need any more problems. However, if WaMu does fail, it will be a large and messy one. The immediate problem is the fact that WaMu has about $143 billions in deposit, but the FDIC only has $45 in reserve. Yes, you read that right.
This means that FDIC will have to borrow money Treasury or replenish the fund somehow. So it’s possible that FDIC will run out of money, and our money won’t be there if WaMu fails — or if any bank fails thereafter. However, I feel that failure of this magnitude is unlikely — the U.S. government will surly step in and bailout WaMu to prevent catastrophic economic failure…hopefully.
Well, that’s something to think about. I believe my money is diversified well enough to prevent any catastrophe to my personal finances, so my plan is to ride out this economic storm. There may be some slight adjustments along the way, but I am not planning to do anything drastic. How about you…what’s your plan?
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Although I don’t have a lot of money right now, we just pulled out our saving for our wedding, my personal accounts as well as my sisters are in Wamu and we plan of pulling out because we don’t want to have to go through 5 days or so of uncertainty. I know the feds would take over or the FDIC would distribute the money, but I just don’t want to have to go through that process or having to stand in line for 3 days
Should I do the same as Atlanta Lady and cash out my small savings ($2500) from Wamu? It is all I have right now, but I do not foresee needing immediate access to it.
Everybody needs to calm down about this. There will be no need for standing in line for your money. If you’re really concerned about the wait, pull out enough money to cover your next bill. Put it somewhere else (hey, how about your mattress?), and forget about losing money.
There are only bank runs because people over-react. If you have good credit, you no doubt have access to cash. I know it’ll cost some money in advance fees, but there’s really no shortage of cash out there.
There is a shortage of patience.
WM is not going to fail. Even if it did, your money is safe. The US Treasury will not — it cannot afford to — let a bank deposit vaporize.
@Barbara — I agree with Bill about no moving the money. If WaMu fails and FDIC cannot give you your money, then we’ll have something else much scarier to worry about.
The government through the FDIC will ensure that people get up to $100,000. But the money comes from the people. Here is something most people are not clear on but it is very critical to the understanding of our current situation. Most people think inflation is rising prices. This is not correct. Inflation is *an increase in the money supply*. Once the money supply has been increased, prices will begin to rise but it doesn’t happen right away, it takes time.
Thus, the inflation (an increase in the money supply) is caused by the Federal Reserve creating more money or credit out of thin air. If the FDIC runs out of money, the Fed will simply create more.
But that’s the problem. The people will end of paying for failed banks whether it is by direct taxation or by inflation.
The big discussion at the moment is the $700B bailout of the bankers on Wall Street who are hugely responsible for the mess we are in. I would like to see this plan scrapped completely and the money saved for the FDIC who will at least put it back in the hands of the people.
Bank runs are not caused because people overreact. They are caused because the bank only holds 10% of its deposits in cash. All bank in the USA are insolvent. That is the nature of the fractional reserve system.
If your bank looks like it may be suffering, you should most definitely move your money to one of the two strongest banks in your state. You can find current lists on the Internet.
@Doug — So far the FDIC did a good job of protecting our money with the transfer of WaMu and now Wachovia deposits. Hopefully, we will never see the day of the government simply printing more money just because they can. That would definitely be the end of the American economy and power.