26 March 2011

Emergency Unlimited FDIC Coverage Extended to Clearing Accounts Until 2013

Someone brought this to my attention, as I had not heard of it. It is not so much what they are doing, but why now?

With recovery supposedly at hand, and the financial crisis over thanks to Ben and Timmy, I wonder why they would enact unlimited FDIC coverage for what sounds like checking accounts and commercial clearing accounts.

The only thing that occurred to me was that in the event of a bank run, it might be intended to prevent another short term credit seizure such as was experienced in the financial crisis.

But why now? And why use FDIC to do take on this unlimited liability, far in excess of what it was intended to do? I doubt very much that this is designed to protect individuals per se, given the exclusions.

Curious. Perhaps I am missing something here.

Temporary Unlimited Coverage for Noninterest-bearing Transaction Accounts - FDIC

From December 31, 2010 through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account and the ownership capacity of the funds. This coverage is available to all depositors, including consumers, businesses, and government entities. The unlimited coverage is separate from, and in addition to, the insurance coverage provided for a depositor’s other accounts held at an FDIC-insured bank.

A noninterest-bearing transaction account is a deposit account where:

interest is neither accrued nor paid;
depositors are permitted to make an unlimited number of transfers and withdrawals; and
the bank does not reserve the right to require advance notice of an intended withdrawal.

Note: Money Market Deposit Accounts (MMDAs) and Negotiable Order of Withdrawal (NOW) accounts are not eligible for this temporary unlimited insurance coverage, regardless of the interest rate, even if no interest is paid. (lol)

Later - here is an old description that probably fits the bill:
"The FDIC's action is one aspect of its Temporary Liquidity Guarantee Program (TLGP). The full account coverage is aimed primarily at business accounts that need to keep larger balances for covering payrolls and meeting other business needs, but it extends to all non-interest-bearing transaction accounts, whether they are held by businesses or by individuals and households. The FDIC's goal is to help depository institutions retain such accounts, giving small and medium size businesses a reason to keep their balances with their current financial institutions. That would help the institutions maintain their liquidity, and thus enhance their ability to make loans."

Unlimited FDIC Coverage for Checking Accounts - Banking Questions
So it is a measure to prevent another seizure in the credit system in the event of a major bank failure triggering a financial crisis. Do you think it covered JPM's $22 billion bridge loan to AT&T for its purchase of T-Mobile?

Do you think Goldman has a program to sweep all of their funds and their partners' personal money into accounts such as this at the first sign of trouble? Just as GE pays no taxes, expect Wall Street to take no pain, in the very troubles which they have caused.

As an aside, I would have used the FDIC and the government to backstop 100% of all customer money in the banking crisis, and let the banks themselves go through a debt reorganization, taking the executives, bondholders and shareholders to the woodshed, in the manner in which Sweden had dealt with its banking troubles. In the US, UK, and Ireland we saw the opposite approach: save the banks, and the people be damned.

But then again, I am not a major contributor to the campaign coffers of Washington, nor a member of the old boy network, and chances are, neither are you. So there you are.

As bad as this has been, if you think the worst is over you are probably just being wishful, maybe a little naive. There is still some meat on your bones, and the wolves are insatiable.

AGI News
Chiudi 09:45 25 MAR 2011

(AGI) Washington - The International Monetary Fund will set up, next week, a 580 billion Dollar anticrisis fund. "The greatest concern is the risk of contagion from Portugal," says a well informed source. IMF's top officer, Dominique Strauss-Kahn, will issue the fund, on the basis of the ratification announced on March 11 by the Nab (New Arrangement to Borrow). Last year, the Nab increased 10 times its initial 53 billion Dollars, thanks to the 13 new member countries.