Your Protected Bank Account is Hurting the Economy

The Federal Deposit Insurance Corporation (FDIC) is a United States government corporation created by the Glass-Steagall Act of 1933. It provides deposit insurance, which guarantees the safety of deposits in member banks, currently up to $250,000 per depositor per bank. The FDIC insures deposits at 8,195 institutions.[2] The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages banks in receiverships (failed banks).

New Deposit Insurance Limits - The standard insurance amount of $250,000 per depositor is in effect through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except IRAs and certain other retirement accounts, which will remain at $250,000 per depositor.

The FDIC was created as a response to rich, middle class, and poor alike losing money in the banking system during the Great Depression when something like 9,000 banks failed over 10 years. 1933 saw 4000 banks fail. The first 10 months of 1930 saw over 700 bank failures.

In comparison,140 banks were closed in 2009. One of the differences between the current recession and the Great Depression is the number of banks then were much higher. However, we banks now have many branches. The number of branches of the closed banks would push the current numbers much higher, but still not as high as the Depression. Some experts believe that the FDIC does not have the resources in people and funds to close and protect all the deposits in banks that should be closed immediately, thus delaying the inevitable.

But it is the policy of FDIC to protect peoples deposits that leads banks to take undue risk on loans, which is what got us into trouble in the first place. People should be concerned about how solid their bank is, but aren't because of the guarantee as listed above. Thus banks can take risks as the depositors aren't concerned. Most people don't even know what their bank's rating actually is.

In addition, FDIC often turns over assets and deposits of failed banks strong banks that are well capitalized (have a lot of money). Banks are not as a group lending to small and medium business owners due to not wanting to risk loss. The banks are holding the money so they can receive or buy the assets from failed banks. So most loans are being done by weak banks. Strong banks are not lending. This is causing prices to go down on houses and other things. This is called deflation. A bank takes your deposit and loans it out to make money usually. With 10 dollars they can basically lend out 90 dollars. Now they are taking your money and not lending out as much. Part of it is real worry about the economy. Another part of the problem is that they can make more off of receiving failed bank assets in the form of deposits from the FDIC as opposed to loaning you money.

Everyone should check out their bank's rating. If the economy really tanks, it may take a while to get your money from FDIC, thus causing some hardship. That is a possiblilty that should not be dismissed. Pay attention to your banks rating.

To find out how your bank is doing check out the web site below.

A 1 Star is bad. A 5 Star is really good. I just checked my own main bank. They'd dropped from a 4 Star to a 2 Star (really good). Now they are a 1 Star. Not good.

http://www.bankrate.com/rates/safe-sound/bank-ratings-search.aspx