Structured Settlements 4Real® Blog: Structured Settlements | Settlement Planning News and John Darer Reviews

How Big Is The FDIC "Tin Cup"?

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.

  

Please sir may I have some more?

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.

 

New Deal Inspiration For 21st Century Financial Crisis

With national elections upon us and the recent announcement by the United States Treasury that the Federal deficit as of September 30, 2008 was $455B (the largest in US history) the following timeless words of the Great Depression era seem appropriate: "This is preeminently the time to speak the truth, the whole truth, frankly and boldly. Nor need we shrink from honestly facing conditions in our country today. This great Nation will endure as it has endured, will revive and will prosper. So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance. In every dark hour of our national life a leadership of frankness and vigor has met with that understanding and support of the people themselves which is essential to victory. I am convinced that you will again give that support to leadership in these critical days.
In such a spirit on my part and on yours we face our common difficulties. They concern, thank God, only material things. Values have shrunken to fantastic levels; taxes have risen; our ability to pay has fallen; government of all kinds is faced by serious curtailment of income; the means of exchange are frozen in the currents of trade; the withered leaves of industrial enterprise lie on every side; farmers find no markets for their produce; the savings of many years in thousands of families are gone.
More important, a host of unemployed citizens face the grim problem of existence, and an equally great number toil with little return. Only a foolish optimist can deny the dark realities of the moment.Yet our distress comes from no failure of substance. We are stricken by no plague of locusts. Compared with the perils which our forefathers conquered because they believed and were not afraid, we have still much to be thankful for. Nature still offers her bounty and human efforts have multiplied it. Plenty is at our doorstep, but a generous use of it languishes in the very sight of the supply. Primarily this is because the rulers of the exchange of mankind's goods have failed, through their own stubbornness and their own incompetence, have admitted their failure, and abdicated. Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men
True they have tried, but their efforts have been cast in the pattern of an outworn tradition. Faced by failure of credit they have proposed only the lending of more money. Stripped of the lure of profit by which to induce our people to follow their false leadership, they have resorted to exhortations, pleading tearfully for restored confidence. They know only the rules of a generation of self-seekers. They have no vision, and when there is no vision the people perish.
The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit. Finally, in our progress toward a resumption of work we require two safeguards against a return of the evils of the old order; there must be a strict supervision of all banking and credits and investments; there must be an end to speculation with other people's money, and there must be provision for an adequate but sound currency . It is to be hoped that the normal balance of executive and legislative authority may be wholly adequate to meet the unprecedented task before us. But it may be that an unprecedented demand and need for undelayed action may call for temporary departure from that normal balance of public procedure. I am prepared under my constitutional duty to recommend the measures that a stricken nation in the midst of a stricken world may require. These measures, or such other measures as the Congress may build out of its experience and wisdom, I shall seek, within my constitutional authority, to bring to speedy adoption. But in the event that the Congress shall fail to take one of these two courses, and in the event that the national emergency is still critical, I shall not evade the clear course of duty that will then confront me. I shall ask the Congress for the one remaining instrument to meet the crisis broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe. For the trust reposed in me I will return the courage and the devotion that befit the time. I can do no less. We do not distrust the future of essential democracy. The people of the United States have not failed. In their need they have registered a mandate that they want direct, vigorous action. They have asked for discipline and direction under leadership. They have made me the present instrument of their wishes. In the spirit of the gift I take it. In this dedication of a Nation we humbly ask the blessing of God. May He protect each and every one of us.  May He guide me in the days to come." Franklin Delano Roosevelt... excerpted from FDR's  Inauguration speech March 4, 1933 and was re-published in many local newspapers today.