How Do You Know Your Bank Account is Safe?
Most of us take it for granted that deposits placed in a reputable bank or financial institution will be available to us when we want them. However, this has not always been the case. As recently as the 1980's there was a savings and loan scandal in the United States where investors lost all of their assets. The Savings and Loan collapses were cantered primarily in Texas, under the governmental auspices of then governor, George W. Bush who also was part owner of several of the defunct financial institutions. These Savings and Loan companies were not FDIC insured, so the members had no recourse.
The Federal Deposit Insurance Corporation (FDIC) is the governmental agency that preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks for at least $100,000. It also functions as an industry watchdog to monitor financial institutions and identify risks. By insuring investors' deposits it limits the effect on the overall United States economy when a bank or thrift institution fails.
The FDIC was created in 1933 in response to the massive number of bank failures that added to the financial system collapse in the 1920s and perpetuated the Great Depression of the 1930s. Since the start of FDIC, not one investor has lost a penny of insured funds as a result of a banking failure. Insured funds are the keyword here. Every investor should make certain that his or her financial institution has FDIC backing.
The FDIC is funded by premiums paid by the participating banks and thrift institutions and from earnings on U.S. Treasury securities. The FDIC insures savings, checking and other deposit accounts up to $100,000 per depositor in every insured institution. the FDIC insures. The FDIC also covers retirement accounts, such as individual retirement accounts (IRAs) and Keoghs, which are insured in amounts up to $250,000. The FDIC insures deposits only; coverage does not extend to stock investments or mutual funds.
The FDIC audits about 5,250 banks and savings banks, which may be chartered by either individual states or by the federal government. Banks chartered by states may choose to join the Federal Reserve System.
When a bank or financial institution appears to be insolvent, the FDIC takes fast action to protect the investors. Insolvent institutions generally are closed by their chartering authority, state or federal and the FDIC has resolves these failures by several methods. Most often, it will oversee the sale of the institutions deposits and loans to other financiers. Customers of the failed institution are automatically transferred to assuming institution. Most of the time, this transition is made without interruption to the customers' accounts and they may even be unaware of the underlying cause of the transfer.
by Sally.Anderson 19 years ago