FDIC & Me

Tried to transfer some funds to my checking account yesterday only to find my bank had been close by the Ofiice of Thrift Supervision and has been taken over by FDIC! This is IndyMac Bank.

http://www.fdic.gov/bank/individual/failed/IndyMac.html

My first personal experience in a failed savings institution, I'll have to be honest, has not been without a fair amount of anxiety. Thank goodness we had some CDs mature 10 days ago and we retitled accounts to insure all were under the $100,000 limit. I didn't want to get caught up in the panic and contribute to a run on the bank by pulling out, but I didn't want to have any risk on this money either. Hadn't worried too much about CDs being over the limit previously.

Supposedly, bank reopens Monday as a newly chartered, full-service Federal Bank with FDIC as conservator. I'll have funds access then. In the meantime, we're experiencing a mini-liquidity crunch. Don't want to write checks without full ability to transfer into the account to cover. Have construction work going on and needed to tell the contractor not to cash the check yet. Very embarrasing... this is not how I conduct business.

Very happy to have FDIC covering us and hope for the best.

That happened to me with Netbank last year. ING bought them out, and we just went ahead and changed over to ING

But what a kick in the teeth, eh? You go away to see your mother for the weekend, and come home to an email that the FDIC has taken over bank. ACK!

Although it sounds as though your total assets were less than $100K, your conception about protection sounds incorrect. The FDIC insurance covers only $100K PER CUSTOMER, not per account within one bank. If there is a joint account with a qualified beneficiary like a spouse, that insurance covers 200K. A qualified IRA gets a guaranty of $250,000, although I am not sure if the same bank handles both your IRA and other assets whether another $100K guaranty is added to the IRA guaranty for your other assets.

That is why you may have seen so many furious older bank patrons waiting nervously, some fainting, in line at Indymac. Many mistakenly believed having separate accounts within the same bank gave an individual guaranty of $100,000 for each account. FDIC insurance does not guarantee liability beyond $100,000 per customer in most individual cases. A separate account within the same bank is the same basket...putting your nest eggs all in one basket means within the same bank.

That brings up an interesting point. The FDIC insurance liability is at a level established decades ago. Inflation has diminished its significance dramatically, since to live just a modest retirement one needs almost $500,000 these days at retirement. If the misconception mentioned above is widespread, as I suspect it is, if people were to suddenly react to it to insure safety, wouldn't the panic cause lots of mini bank runs as people attempt to redistribute their wealth?

Also I heard many brokerages offer private insurance on accounts in amounts far greater than the FDIC guaranty. What is the reason banks do not automatically offer the same for their customers?

No, you misunderstand. The accounts in question were all in my wife's name solely. The total of the accounts was over 100k. So we spit it up and made part of it a joint account with her mother. We also have other accounts that are jointly held between the 2 of us and accounts in my name alone. The only accounts at risk were the CDs and MM in her name alone. We were fully aware of what the FDIC coverage entails, just a bit lax in monitoring that particular part of our holdings. We satisfactorily resolved the situation shortly before the bank was taken over. The close timing was my main point.

The bank is back doing business somewhat as usual, at least as far as our needs are concerned. So we haven't made any changes yet. We are waiting to see how it all plays out.