Everyone tells us that individual depositors should not worry if their bank
fails, because their deposits are insured by the government's Federal Deposit
Insurance Corporation for amounts up to $100,000.
That means $100K per customer, not per account, unless the accounts are
under different names. Thus, you might have one account for $100 K and your
wife might have another for $100K and, we are told, they both would be
covered. But, if you have one account with both names on it and over $100K
in the account, the amount over 100K might be gone after the bank fails. If
that is your circumstance and it worries you, you might want to move some of
your money into a new bank.
But, now comes the really tough question. As a practical matter that
probably would completely absorb your attention if and when your bank
really does fail, how hard would it be for you to get your money ($100K or
under) that is insured by FDIC after the bank fails?
We called the Federal Deposit Insurance Corporation to find out. You may be
relieved to hear that, historically, the FDIC has been very timely in its distribution
of insurance payouts. Their goal is to complete insurance reimbursements
within two business days. According to the official we spoke with, that goal
is usually met, either by transferring money to a healthy bank or by paying
the depositor with a government check.
But this raises another worry. The FDIC was created in the Depression. We
haven't had massive bank failures since then. If many banks or even one or
two big national ones fail, why should we think that the Feds will be able
to pay out sums of up to $100K all at once? Is there some majestic software
program that will do that? Isn't there a chance they will be overwhelmed?
And might not the federal government suddenly find out that there are
"issues" with some of these accounts? Maybe someone will raise the
possibility of fraud. Maybe, in other words, the federal government--for all
the best possible reasons, mind you--will decide to take a while to
investigate the situation and pay out the money "responsibly."
Meanwhile, might you not wind up on the phone, in lines, filling out papers,
maybe even going to court, for weeks, months or years? And what does one do
in the meantime if that happens? There are bills to pay.
Prudence might seem to argue at least for having more than one bank.
(This post was co-authored by Bruce Chapman)
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