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The FDIC, a bank merger, and deposits
Question: Hey - Imagine that last week I had $250,000 in deposits in Wachovia and another $250,000 in Wells Fargo, all FDIC insured, all okay. Now that they are the same company, would I still be fully insured? Bill, Louisville KY
Answer: I don't think I'd go to Las Vegas with you, but as far as your insured deposits go you would be just fine. According to the Federal Deposit Insurance Corp. when two banks merge--whether it's a shotgun marriage or a voluntary union--the FDIC provides a "grace period" that protects depositors with funds at the two banks. As a general rule, the accounts would continue to be separately insured for 6 months after the merger. The idea is that 6 months gives you enough time to make any needed adjustments to your accounts to stay insured going forward.
By the way, the grace period can be longer for certificates of deposit (CD). When a CD is taken over by another bank thanks to a merger, it continues to be separately insured until the earliest maturity date after the end of the six-month period.
About the author
Christopher Farrell is economics editor of Marketplace Money, a nationally syndicated one-hour weekly personal finance show produced by American Public Media.
In regards to the percentage of accounts fully insured by the FDIC...
I found data on the FDIC's website <a href="http://www2.fdic.gov/SDI/SOB/">http://www2.fdic.gov/SDI/SOB/</a>. If I'm reading their report correctly for the end of Q2 2008, they list number of accounts under $100,000 as 568 million, and the number of accounts over $100,000 as 9 million for June 2008. They don't total how many of these 9 million accounts were joint accounts under $200,000 or if one individual had multiple accounts under $100,000 that together totaled more than $100,000 in total deposits, etc., but it's a ballpark figure.
However, more important than the percentage of accounts, it seems to me, is the total dollar figure in accounts above $100,000. This, according to the FDIC is: $3.2 trillion under $100,000, and $3.6 trillion above $100,000.
I can't find the article I read back when WAMU failed, but I recall a quote citing that much of the $16 billion or so run in the days before the seizure by the FDIC came from accounts over $100,000. Who knows if WAMU would have survived without that run on deposits, but it certainly didn't help. I'm guessing Wachovia's run on deposits came significantly from accounts above FDIC insurance limits, too.
Raising the FDIC limits seems as much a move to protect consumers as it is aimed to prevent further bank failures due to lack of short-term liquidity caused by panic.
Does anyone know if the banks are paying higher insurance premiums to go along with this increase in coverage, or is this money provided by the government in the bailout bill?
Jonathan
