Word: fdic
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...Monday, Sept. 29, when it was clear that Wachovia, the enormous U.S. bank, couldn't open its doors to customers due to a lack of funds, the board of the Federal Deposit Insurance Corporation (FDIC) voted for the first time since its creation during the Great Depression to take a "systemic risk exception" to the rules that usually limit what it can do. The exception allowed the FDIC to cover some of Wachovia's potential losses, enabling the bank's sale to Citigroup and its continued operation...
...FDIC's concern about the fragility of the system extends to other agencies. On Sept. 23, while lobbying Congress for $700 billion to lift bad loans out of the financial system in hopes of restarting lending between banks, Treasury Secretary Henry Paulson downplayed another, more extreme approach to shoring things up. "Some said we should just stick capital in the banks, take preferred stock in the banks," Paulson said. "That's what you do when you have failure. This is about success...
...FDIC has a clear message for Americans who are beginning to awaken to the size of the problem: Don't panic. Banks will fail, but it is highly unlikely that depositors will lose their money. The FDIC now guarantees up to $250,000 in individual deposits at the banks it insures. And by law it gets its hands on a failed bank's assets before any other creditors do. FDIC chair Sheila Bair is eager to talk about how no insured depositor has ever lost a penny of his or her deposits...
...even if a company were to fail outright, consumers are protected much in the way that routine bank deposits are guaranteed by the FDIC. Under a 40-year-old system, each state has an "Insurance Guarantee Fund" to which companies contribute that guarantees property, casualty, life and health claims if a company is insolvent. The maximum amount per claim varies by state and by the type of insurance, but it is as high as New York State's $1 million on property and casualty claims...
...might tempt banks to get too risky again, but most experts say that hazard can be handled by forcing the banks to put up some of their own capital as margin. At the same time, depositors need to be assured that their money is safe. That's why the FDIC moved to temporarily raise the insurance limit on savings accounts from $100,000 to $250,000. Ireland and England have made similar guarantees...