Bank collapses or bank runs are common through history. The U.S. lost about 80 banks this year but depositors have been safe, but that may change.
Are Bank Runs Possible in the U.S.?
Right now Greece is experiencing bank runs because the Greek population knows the Greek banks are in big trouble. Approximately 80 banks have already collapsed this year in the U.S. (Source: www.marketwatch.com) but there have been no real bank runs. Are runs on banks, when a rush of depositors demand their money back, a thing of the past?
Bank Collapses are Common in History
From Bank of Credit and Commerce (BCCI) to the failure of Washington Mutual in 2008, banks collapse fairly frequently according to an article by BusinessPundit.com (Source: www.businesspundit.com). WaMu’s failure was preordained by bad real estate loans and then a full fledged bank run where over $16 Billion in depositors funds went flying out the door in September of 2008. We can safely say, Yes, bank runs in America do happen but fortunately not with depositors losing their money. Not yet, at least.
Bank Depositors are Protected to a Limited Amount
FDIC limits for bank accounts that are not interest bearing accounts – such as savings accounts – are now unlimited. The FDIC backs the full amount in the account according the new rules posted on November 9, 2010. On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Oddly, the protection seems to disappear on December 31, 2012. (Source: www.fdic.gov).
Interest Bearing Accounts, and other accounts are limited to $250,000 per depositor. This could change at any time and the FDIC.gov site is the place to get the latest information. Importantly, a bank collapse would probably be due to one of two factors in the present climate. Either bad real estate loans, or exposure to contracts known as derivatives that are tied to conditions in Europe. Of the two situations likely, the bad real estate loans have taken the worst toll so far on American banks. That may change soon.
If a Big Bank Collapses, the FDIC is Out of Money
According to TheStreet.com (source: www.thestreet.com), Bank of America, along with JP Morgan, Citi, and Goldman Sachs control about 95% of the $235 Trillion derivatives market. Yes, that number is correct and trillion not billion. That means that if there is a problem in the derivatives side of one of these banks balance sheet, then the whole bank is at risk. And that means depositors are at risk.
Bank runs are not a thing of the past, but a possibility for the very near future.
Source: Mark Solomon from Financial Survival Center.
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