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Is the FDIC still in good health?

Financial analyst Karen Shaw Petrou

TEXT OF INTERVIEW

TESS VIGELAND: This week a bunch of the country's biggest banks reported third-quarter earnings. JPMorgan-Chase and Goldman Sachs turned profits. Citigroup and B of A reported losses. Meanwhile, the Federal Deposit Insurance Corporation is closing down smaller banks just about every week. The FDIC is the government agency charged with making sure customers can get their money out of a failed bank. But daily reports on the FDIC's health have a lot of people wondering about their deposits.

So we've brought in banking analyst Karen Petrou of Federal Financial. Karen, welcome to the program.

Karen Petrou: Thanks very much.

Vigeland: Let's get some basics out of the way first. Really just give us a rundown of what the FDIC covers when a bank fails.

Petrou: The FDIC covers insured deposits up to $250,000 per account. So sometimes if you have different types of accounts, you might get more coverage than that. But in general it's $250,000 of an insured deposit.

Vigeland: Then why are we seeing all these headlines these days about the health of the FDIC itself? There seems to be a lot of concern that they're bailing out so many banks that they're going to run out of money.

Petrou: It's going to replenish the fund before that through the banks, but if for some reason that didn't work, there's always Uncle Sam. The FDIC has a half-a-trillion-dollar line of credit with the U.S. Treasury. So insured deposits at FDIC-insured institutions are very, very safe.

Vigeland: Has the FDIC ever not made good on its promise to any bank depositor?

Petrou: It has always made good on its promises to insured depositors. It's important to remember that some accounts are uninsured, so you shouldn't expect the FDIC to honor uninsured claims, but it's always made good on all of its insured ones.

Vigeland: And what's the difference between the insured deposits and the uninsured deposits? Is that simply where you bank?

Petrou: No, it's how much you hold. Any bank with an FDIC sticker on it, which is all regulated banks and savings associations, is protected by the FDIC. The difference is the amount you hold. Up to $250,000, you're fine; $250,001, that one dollar becomes an uninsured deposit and it is subject to risk.

Vigeland: And you can then spread out your deposits, can't you? You can put them with different institutions and then you have up to $250,000 at each one of them?

Petrou: Absolutely.

Vigeland: So what should consumers be watching for when it comes to these headlines -- that are very worrying when you read them -- that say the FDIC is in trouble?

Petrou: I don't think consumers need to worry. As long as their money is at a regulated bank or savings association, your money is safe, up to the deposit insurance limits.

Vigeland: Karen Petrou is a banking analyst at Federal Financial Analytics. So nice to have you on the program. Thanks for your help.

Petrou: Thank you very much.

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