Your Bank And The Financial Crisis
February 25th, 2010 |Your Bank And The Financial Crisis
A lot of banking customers are worried about their money. In an economic environment that many experts have dubbed the worst financial crisis since the Great Depression, banks are under enormous pressure. Federal bailout efforts that carried high hopes and lofty expectations have yielded few results. Meanwhile, confusion regarding the safety of deposits has led many customers to wonder whether they should pull their money out.
Today, I’m going to address a few common questions that people have about the banking industry, the current financial crisis, and ultimately, their deposits. In doing so, we’ll eliminate some of the confusion about the safety of your money and the bank in which you’ve deposited it.
“If my bank goes under, what happens to my money?”
You’ll still be able to get immediate access to your money. The FDIC, which guarantees your deposits up to $250,000, descends on the failed bank, but doesn’t normally close it until the first Friday. Over the following weekend, they’ll try to either line up a buyer for the failed financial institution or create a new one. Then, they’ll transfer the assets.
There’s a possibility that the FDIC won’t be able to find a buyer. If that happens, and a decision is made to forgo creating a new entity, operations will stop; in that case, you won’t be able to access your funds for up to a week. However, such occasions are rare. In most cases, you won’t even know that your banking establishment has failed (aside from news headlines).
“I do my banking at a credit union. Am I safe?”
Yes, your money is safe, though it’s guaranteed through another entity. As you know, the FDIC protects traditional banking customers from losses up to $250,000 (as I noted above). Credit union customers are protected from similar losses by the National Credit Union Share Insurance Fund (NCUSIF). The amount of that protection for individual accounts is currently the same as that offered by the FDIC: $250,000.
“Is my money market account safe?”
It’s probably safe. Unlike conventional banking arrangements, money market funds can potentially lose value and fall below $1. In fact, we witnessed that during the last few months of 2008. That said, it’s rare; when a money market account is in danger of falling below the $1 value, financial institutions (including banks) typically inject their own cash in order to support the value. These days, when banks are starved for cash, that’s less likely to happen. If you’re concerned, consider transferring your assets into an account that will be covered by the FDIC.
The unique economic situation that we’re experiencing here and abroad presents new challenges for banking institutions. The important thing to remember is that traditional savings and checking accounts are protected (up to $250,000) by the FDIC or NCUSIF.