by John Darer CLU ChFC CSSC RSP
The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation created during The Great Depression by the Glass-Steagall Act of 1933. Pursuant to 12 U.S.C. 1828(A)(1)(B) insured deposits are guaranteed by the full faith and credit of the United States government.
The basic limit on federal deposit insurance coverage was temporarily increased from $100,000 to $250,000 per depositor through December 31, 2009. On January 1, 2010, FDIC deposit insurance for all deposit accounts—except for certain retirement accounts—will return to at least $100,000 per depositor. The $100,000 limit on FDIC coverage was established in 1980. Insurance coverage for certain retirement accounts, which include all IRA deposit accounts, was increased permanently to $250,000 per depositor in 2006.
On October 14, 2008, the FDIC announced its temporary Transaction Account Guarantee Program, providing depositors with unlimited coverage for non interest-bearing transaction accounts if their bank is a participant in the FDIC’s Temporary Liquidity Guarantee Program. Non interest-bearing checking accounts include Demand Deposit Accounts (DDAs) and any transaction account that has unlimited withdrawals and that cannot earn interest. Also included are low-interest NOW accounts that cannot earn more than 0.5% interest. Interest-bearing accounts include NOW accounts that can earn more than 0.5% interest, other interest-bearing checking accounts, Money Market Deposit Accounts (MMDAs), savings accounts, and Certificates of Deposit (CDs). This program is scheduled to end on December 31, 2009.
The FDIC is primarily funded by ASSESSMENTS from solvent banks in the system. Read about FDIC law, regulations and related acts.
As recently reported FDIC Chairperson Sheila C. Bair warned that the fund used to protect depositors at U.S. banks could dry up in 2009 unless there were significant assessments on the remaining banks in the system. The FDIC currently has a statutory line of credit with the United States Treasury Department of $30 billion, a level in place since 1991. A line of credit is like an account that can readily be tapped into if the need arises or not touched at all and saved for emergencies. Credit comes at a cost. The Senate is moving to have the line of credit increased to $500 billion.
On the insurance side, according to the National Association of Life and Health Guaranty Associations (NOLHGA), "if the (insurance) company does not have enough funds to meet its obligations to policyholders (a common occurrence with insolvent insurance companies), each state guaranty association ASSESSES the member insurers in its state a share of the amount required to meet the claims of resident policyholders. The amount assessed is based on the amount of premiums each company collects in that state on the kind of business for which benefits are required.
The above begs the question if is it possible that an assessment or series of assessments could represent such a large number that it drags down "on the bubble" institutions or "close to the bubble" institutions in banking and insurance? In other words How Big is the FDIC's "Tin Cup"? Our regulators need to have more clarity in addressing this issue.
It is all the more important today that there be diversification of risk for tort victims. Where the higher degree of safety is required a United States Treasury Bond Structured Settlement should be considered as part of the mix. Combining Treasury Inflation Protection Securities (TIPS) along with a Zero Coupon Bond (Strip) which at maturity is equal to the original principal, the United States Treasury Bond Structured Settlement offers outstanding safety.