Technical Question about the Banking System

[wwswimming]

i just spoke with an account person about Wachovia,
to ask them to describe what happens in the event
of a bank failure.

he rattled off some bank numbers, "X Bank just lost
$Y on mortgage-backed securities, and still had a
$Z profit."

i acknowledged that i was talking about preparing
for a difficult situation, that perhaps at Northern
Rock (or whichever bank(s) have failed recently),
that a failure seemed unthinkable also.

basically i said, "if this bank fails, what is the Procedure ?"
for recovering funds via the FDIC, noting that i had a
minimal amount on deposit, and was thinking about
closing it, or adding some more.

Bottom Line, according to Wachovia Bank Person -
if a bank fails in the US, the FDIC has 6 months to
pay the first $50K of deposits, and another 6 1/2
years (or 7 years) to pay off the next $50K.

while i'm looking for some relevant FDIC fine
print, i'm wondering if anybody else here knows
straight answers about recovering deposits from
a failed US bank.

it sounds like there's some wisdom in keeping
6 months worth of expenses as "cash on hand",
and limiting accounts with any one bank to $50K.

God knows what $50K US will be worth in 7 years
in the event of a series of bank failures in the
US. "approximately = 0".

 

[soccerballtux]

If this were actually in store for us there would be all kinds of signs in the market about it. Specifically, nobody would be investing anything long term at all because if America bottomed out in the next 7 years so would a large portion of investments. If you want something to confuse you, take an economics class. I thought I had all this stuff figured out and was sure the US was going to tank...now I'm more confused than ever and simply have no clue what could happen. I need some time to think it all over and what it means and then I will make my decision about what I think is going to happen. But basically, tanking, in the next 7 years, is not something I'm concerned about.

 

[WildHorse]

Look around in here. Note the FAQ about 6 lines below the heading "Deposit Insurance."

Here's an excerpt from that:

What happens when a bank fails?
The FDIC would either transfer the insured depositor's account to another FDIC insured bank, or give the insured depositor a check equal to their account balance. This includes the principal and interest accrued through the date of the bank's closing, up to the insurance limit.


If a bank fails, what is the timeframe for payout of the funds that are insured if the bank cannot be acquired by another financial institution?
Federal law requires the FDIC to make payments of insured deposits "as soon as possible" upon the failure of an insured institution. While every bank failure is unique, there are standard policies and procedures that the FDIC follows in making deposit insurance payments. It is the FDIC's goal to make deposit insurance payments within one business day of the failure of the insured institution. Typically, a bank that has failed will be closed on a Friday. The FDIC will then work the weekend to complete deposit insurance determinations for most deposits and be prepared on Monday to either transfer the insured portion of a deposit to another FDIC insured institution or provide deposit insurance payment checks. (Note: Some deposits that require supplemental documentation from the depositors, such as accounts linked to a living trust agreement or funds placed by a deposit broker, may take a little longer. The timing of the completion of the deposit insurance determination is based solely on the depositor providing the documentation needed by the FDIC to determine insurance coverage.)

 

[wwswimming]

Federal law requires the FDIC to make payments of insured deposits "as soon as possible" upon the failure of an insured institution.

Thank You Very Much for digging that up !

until i plow through the text myself, the "as soon as possible"
leaves me wondering. the FDIC reserves are $50 billion,
i think. that's not enough to cover a major bank failure.

the subprime mortgage situation is pretty far reaching.
here's an interesting article about how it affected a town
in Norway that put about $60 Million in SIV's.

http://www.nytimes.com/2007/12...e/02norway.html?ref=us

 

[WildHorse]

But it clarifies the meaning of the phrase, "as soon as possible."

It says payout to the small fry (you & me) would normally be expected after one intervening weekend.

"The FDIC will then work the weekend to complete deposit insurance determinations for most deposits and be prepared on Monday to either transfer the insured portion of a deposit to another FDIC insured institution or provide deposit insurance payment checks."

 

[wwswimming]

But it clarifies the meaning of the phrase, "as soon as possible."

OK, thanks. i wonder why the Wachovia guy told me about
the 6 months/ 7 years scenario. i closed that account, but
not because of what he said about the FDIC.

 

[WildHorse]

i wonder why

Either he has inside info or experience based upon which he knows better than what FDIC says in its web site, or
he's pretending to expertise he lacks and is talking from ignorance.