Main Street vs Wall Street

In 2008, the Federal Deposit Insurance Corporation (FDIC) established the Transaction Account Guarantee (TAG) program to instill public confidence in the banking system.  The program provided unlimited guarantees to non-interest bearing accounts through 2010 and then the program was extended to the end of this year (2012). 

And now in plain English (Sorry about that, too much banking jargon), banks pay into a federal program for insurance that guarantees depositors (anyone holding money in a bank) get their money bank if a bank fails and shuts down.  Deposits have traditionally only been insured up to a certain dollar amount and anything over the cap is uninsured.  In 2008, the TAG program raised the cap from $100,000 to $250,000 for deposit accounts and gave non-interest bearing accounts (like a traditional checking account) an unlimited guarantee.  This was supposed to inspire confidence in a banking system that was floundering due to the financial crisis that was really picking up steam in Fall, 2008.

Now, the Senate is supposed to vote today on whether or not to continue the program past December 31, 2012. 

The prevailing thinking is that this temporary guarantee helps community banks because they typically have less creative ways to structure accounts and keep dollars insured.  The reality may be different.  Earlier this summer, the Chairman of the FDIC, Martin Gruenberg, said most of the extra deposits protected by the temporary program were held in the Country’s 10 largest banks.  That doesn’t mean community banks–and their customers–haven’t benefitted from the program, but they may not have been the “biggest” beneficiaries.  Hopefully, small businesses, wherever they bank, have been able to benefit from the added security and will be able to move forward confidently no matter the outcome of today’s possible Senate vote.

If you’re a small business or have personal deposits at a local bank, visit your banker or go to the FDIC website and find out if your deposits are protected.  Chances are, your community banker will be able to make sure you’re covered one way or the other.

So…The Big Banks finally get it

According to today’s Wall Street Journal, “Banks” are getting back to the people business.  The funny thing is that when they say “Banks” they mean the biggest banks in the country.  According to the Journal, “deep customer relationships were the bedrock of the U.S. banking industry, especially at small financial institutions.  That ended at many regional and big banks with the rise of computer-driven credit scoring models…”  The Journal goes on to say that, after a few rough years, those same big banks are trying to go back to the model that has worked so well for community banks–know your customer, and look at credit AND character.  Good community banks never stopped using this model. 

Community banking works because we’re a typically a conservative bunch of businesspeople.  We have high standards but we’re not beholden to a business model that throws out the good clients with the bad.  So we look for business owners that know what they’re doing and that also have strong character. Our customers know us and we know them.  Ideally, it creates an accountability on the part of both the lender and the borrower because we are working with people we know in communitites we want to see grow.  Poor decisions hurt us and the community at large.

So, go see a good community banker if you want to work with someone who cares about you and your business, knows the communities you know, and wants you to succeed.

Wall Street Reform Makes Deposit Insurance Increase Permanent

There are many changes coming down the pike from the recently enacted Wall Street Reform Bill.  Some of them will be easier to understand than others.  One change that makes a lot of sense isn’t really a change; it’s just a temporary regulation that was made permanent by the Wall Street Bill.  The insurance protecting your bank deposits has been permanently increased from $100,000 to $250,000. 

The Federal Deposit Insurance Corporation (FDIC) has been guaranteeing customer deposits since it was enacted in 1934.  The original limit in 1934 was $2,500 per individual.  The limit was raised six more times between 1935 and 1980, when the limit was increased to $100,000.  After the increase in 1980, the insurance cap stayed the same until Congress voted to temporarily increase the individual limit to $250,000 in 2008 as part of the $700 Billion TARP (Troubled Asset Relief Program) Bill that was a response to the recent financial crisis.  The TARP bill and the increase were both measures to designed to inspire confidence in America’s banking system and quell a growing concern with the national banking network. 

One additional inclusion to the recent Wall Street Reform Bill was to make the increase permanent retroactive to any bank failures beginning January 1, 2008, before the temporary increase was enacted.  So depositors who may have lost personal deposits in excess of $100,000 can now apply to get back deposits that were lost earlier in 2008.

Your coverage may actually be more than $250,000 depending on how your deposits are held at your local bank.  Depending on ownership and type of account, you could be eligible for more than $250,000 in coverage.  If you’re not familiar with FDIC coverage for your bank deposits there are many ways to get current.  Your local First National Banker—and any community banker—is a good resource for helping you understand the limits and determine if you are fully covered.  In addition, the FDIC has come out with several different resources including a deposit insurance calculator, a release detailing the increase with additional information, and a FAQ link for more answers.

The FDIC says depositors have never lost money on an insured deposit since the fund was created in 1934.  I guess this increase should give people even more assurance that their money is safe and that community banks like First National continue to be the safest place for bank deposits.