Taking a look at the FDIC (Federal Deposit Insurance Corporation)

Good Wednesday to everyone. The work week is half over and we can all go watch movies that , quite frankly, were not worth the money.

Now for a look at the FDIC. The FDIC is, in theory, supposed to keep the bank deposits of individuals save up to $250K in the event of a bank run. It was created in 1933 just after the Glass-Steagall act of 1932. An examination of the Glass-Steagall act will come in a later blog, for right now, I want to focus on the FDIC. President Franklin D. Roosevelt signed the FDIC into law and it has stood as a guarantee to depositors that if the banks were ever to fail as they did during the great depression, depositor's deposits would be "save".

Will depositor's money be safe? We started out with FDIC insuring each deposit, then things changed. Now depositor's are now insured up to $250K per depositor. This means when you set up your accounts you have to be very careful how you do it. Check with your bank people. They won't want to tell you, but insist, or leave. More info is available online, enough to make you an expert if you want to be. Basically, if something happens, like a bank run or collapse, the FDIC will add up the total of all the accounts you hold and give you the balance of all the accounts up to $250.

The FDIC has on hand about $25 billion. Deposits from individuals total about $10.6 trillion. If something happens, the FDIC will either pro-rate everyone, we can expect to see, if my calculations are right, about $0.023 per dollar that is deposited. But wait! Yes, there is more. Several years ago the rules changed. The banks moved on our "leaders" in Washington, the absolute best politicians money can buy, and got the rules changed. Yes, the FDIC must now cover the derivatives of the big banks before they pay off the depositors. Remember, the FDIC only has $25 Billion. The latest value of the derivatives I could find, and it is several years old, is $300 Trillion dollars ($300,000,000,000,000). No matter how you cut it, that is a lot of money. They get paid out of the $25 Billion dollar ($25,000,000,000 (On its own, this looks big. Compared to the number above, this is peanuts.)). reserves of the FDIC before depositors do.

And yes, it gets better yet. Deposits used to be just that, legally speaking, deposits. That meant that if anything happened, depositors were at the front of the line to get any assets the bank might have left. Enter the best politicians money can buy again, and wham bam, thank you Ma'am we are now, under the laws covering banking, unsecured creditors. Bottom line. If the bank goes down, depositors are at the back of the line to get their money back.

A question to ponder. If something happens to the banks, will the depositors, you and me, get anything. I wager no. Please act accordingly.

References: https://www.forbes.com/sites/greatspeculations/2015/05/22/q1-2015-u-s-banking-review-total-deposits/#5391c4e86af8

An info graphic that should not be missed. http://demonocracy.info/infographics/usa/fdic/fdic.html

Until next time.