Archives for June 2009

The standard maximum insurance limits for both FDIC and NCUA-insured accounts will remain $250,000 for at least until December 31st, 2013. Previously, it was temporarily increased from $100,000 to $250,000 only until December 31st, 2009. The extension was included as part of the Helping Families Save Their Homes Act, which was signed into law on May 20th. I wish it was made permanent, but I suppose this is better than nothing.

Here is the media release from the NCUA. Here is the FDIC fact sheet outlining the new changes. FDIC is for participating banks, and NCUA is for participating credit unions.

You may actually have more than $250,000 of coverage, depending on how you have titled your accounts and where you hold multiple accounts. Here are the official online calculators:

NCUA Electronic Share Insurance Calculator (ESIC)
FDIC Electronic Deposit Insurance Estimator (EDIE)

On May 29th, the FDIC issued a ruling [PDF] that would limit future interest rates offered by FDIC-insured banks which were deemed “less than well-capitalized”. This was viewed by some as a response to a complaint filed earlier with the FDIC by the American Bankers Association (ABA), a bank lobby group representing all the mega-banks. The ABA said that it was unfair that Ally Bank could offers such high interest rates when its parent GMAC was accepting government assistance.

How weak is weak?
A bank can be classified as “well-capitalized”, “adequately-capitalized”, and different levels of “under-capitalized”. An insured depository institution is “well capitalized” if it “significantly exceeds the required minimum level for each relevant capital measure” set by the FDIC. According to this Bloomberg article, only 3% of banks are not well-capitalized.

Rate cap details
If a bank is not well-capitalized, then it cannot offer interest rates greater than 0.75% higher than the “national rate”, which is just an average of rates paid by all U.S. depository institutions. As of June 1st, these maximum rates would theoretically be:

Not exactly yields I’d whip out my SSN for. I dislike the idea of messing with free markets and competition, but I can see how the FDIC would want to prevent weak banks from offering high yields as a last ditch effort at survival, only to end up needing even more FDIC funds. However, using an average can be misleading as there are plenty of big banks (ABA members *cough*) with piddly yields for no good reason besides they have inertia and can get away with it. Of course some banks will offer yields well above market to attract money. How else do you propose they do it?

Not as bad as you think
This announced stirred up a lot of speculation that a bunch of high-yielding banks like Ally would soon be forced to lower their rates. But we have already seen that only 3% of banks are not well-capitalized, so there will still be 97% of banks competing to get our money. Also, the ruling does not become effective until January 2010, so rates aren’t going to be capped any time soon.

Specifically, the GMAC/Ally Bank CEO Molina has just publicly responded by stating that Ally Bank is definitely well-capitalized, in fact better capitalized than some of the ABA’s members. Ha!