Monday, November 3, 2008

Loss In Confidence In Banks Causes Huge Shifts In Deposits

The strong are getting stronger and the weak are getting weaker. That's the takeaway from a USA Today article on the state of the U.S. banking industry. Nervous banking customers are taking their money from institutions that are perceived to be weak and moving the money to institutions that seem relatively strong. The problem, though, is that it's destabilizing some banks that are doing just fine, making them takeover targets. Banks that are struggling, meanwhile, become insolvent as customers yank money and move it elsewhere.

From the story:

Still, as long as funds are federally insured, depositors should not worry about losing their money, says Stephen Brobeck, executive director of Consumer Federation of America, an advocacy group: "There's no way the government won't meet its federal deposit insurance guarantees."

FDIC spokesman David Barr says the agency has a "flawless track record" of protecting consumers' life savings. "In our 75-year history, not a single customer has ever lost a penny of insured funds as a result of a bank failure," Barr notes.

These assurances provide little comfort to Walerstein, of Brooklyn. He says the collapse of the mortgage market, along with the use of taxpayer money to prop up the financial system, has made it hard for him to trust the government.

"If there's a major run (on the banks), I worry that there's a lot of us that will be out in the cold," Walerstein says.

Even if the FDIC didn't have enough to cover losses, the government could always just print more money, right? (Sarcasm writ large.)

Read the rest of the USA Today story here (link).


  1. The thing that worries me is that I have deposits in a CU that is insured by ASI (American Share Insurance). They are NOT federally insured. I have seen nothing negative online about them, but who knows.

    I'm seriously thinking about moving my deposits to either BoA or Penfed.

    Sad, Because they have been my main "bank" for 10 years with great CS.

  2. clutchcargo:
    As CM said, the Federal government can print money to make good on its deposit insurance promises.

  3. Clutch, credit unions are not federally insured. None of them are. Many credit unions have deposit insurance through the National Credit Union Share Insurance Fund. Insurance coverage is in line with FDIC figures. Sounds like your CU is insured through a similar insurance fund.

    Do your homework and then make your move (or no move).

  4. said:Clutch, credit unions are not federally insured. None of them are

    Marcus, are you sure about that? I know ASI is a private company, BUT NCUA and NCUSIF are federal gov't entities. NCUA goes out of their way on their website right now to show they're backed by the fed. gov't.

  5. Sean, I stand corrected. I was thinking of something else when I wrote that. Call me mistaken.

    I have now done my homework.

    Thanks for keeping me honest.

  6. From NCUA's site:

    The National Credit Union Administration (NCUA) is the federal agency that administers the National Credit Union Share Insurance Fund (NCUSIF). The NCUSIF, like the FDIC’s Deposit Insurance Fund, is a federal insurance fund backed by the full faith and credit of the U.S. Government.

  7. That's what worries me. While the governments ability to just print money to cover FDIC/NCUA covered deposts isn't all that comforting, private companies like ASI's inability to do so is even less comforting.

  8. Clutch, I agree. I imagine that I would not feel too comforted, in this environment, with a CU that depends on an insurance that's not backed by the full faith and credit of the U.S. government.

  9. I'm sure the feds will just bailout ASI if things go south... Wont they?

    I researched all of the CU's in my area and half are insured by ASI. Interesting.

  10. Clutch, you never know. I had never heard of ASI until your post. I'm sure we're all just worrying too much.

  11. That sounds just about right. This article brings some light on my subconscious behavior.

    Lately, I don't know why, but I seem to be making a lot of deposits on my Chamu account whereas, just prior to Washington Mutual's collapse, I was busy taking money out of the account (in a "controlled" fashion).

    In both cases, I'd do the deposit/withdrawl routine to the point where when I'd look at my account balances, I'd go: "Oh lord! When did I do all that?!?"

    Power of subconscious :-D