Fallout: The Financial Crisis

FDIC has role in boosting confidence

Stacey Vanek Smith Oct 14, 2008
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Fallout: The Financial Crisis

FDIC has role in boosting confidence

Stacey Vanek Smith Oct 14, 2008
FDIC Logo FDIC
HTML EMBED:
COPY

TEXT OF STORY

Kai Ryssdal:
Until not too long ago all most of us probably knew about the Federal Deposit Insurance Corporation was from that sticker we saw on the door of the bank as we went in. Deposits Insured up to $100,000. Thanks to the bailout plan that’s now $250,000. And according to the president this morning, that’s not the only new thing the FDIC’s got going for itself. Marketplace’s Stacey Vanek Smith reports.


Stacey Vanek-Smith: Under the new plan, the FDIC will guarantee new debt issued by banks for the next few years. That’s supposed to encourage financial institutions to start lending to each other and to customers. The FDIC will also temporarily guarantee certain bank accounts for an unlimited amount of money. FDIC Chairman Sheila Bair says insuring more and bigger accounts will help restore confidence.

Sheila Bair: This aspect of the program allows bank customers to conduct normal business knowing that their cash accounts are safe and sound.

Jared Bernstein, with the Economic Policy Institute, says security is all important right now.

Jared Bernstein: One of the main purposes was to push back against this run-on-the-bank concern. And it’s not an idle concern. There’s been a number of quiet and some not so quiet runs on the bank.

Federal regulators had noticed a lot of small-business customers with balances over the $250,000 dollar federal insurance limit, pulling their money out of weaker banks. Customers were following suit. Martin Cohn says he considered withdrawing all of his money after hearing that even his most stable investments weren’t necessarily safe.

Martin Cohn: I thought the money markets were safe and read about the fund that was actually losing money and I thought, oh my gosh, where am I going to put my money?

But Cohn says he feels more confident now. Economist Bernstein says the FDIC’s move was also competitive. Because other countries are offering unlimited deposit guarantees, the U.S. had to step up to avoid having wealthy clients and businesses move their money out of U.S. banks.

I’m Stacey Vanek-Smith for Marketplace.

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