FDIC Bank Deposit Insurance (United States):
Some Things you did not Know (and Should)
. Some Things you did not Know (and Should)
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Many people have written to us ask about the security of banks exterior the United States. clearly, most of these question have come from Americans who are annoying to make a contrast between FDIC, or government bank account insurance, and any similar type of insurance or bank security programs. While having a administration insurance program inside place to protect depositors is a wonderful idea, one should be very clear about precisely what kind of coverage exist (and if the government sponsored insurance company is financially solvent or able of addressing a true banking crisis). We only mention this since, while FDIC allows many people to sleep better at night, as a solvent insurance company, in my opinion FDIC is somewhat of a sham. In the least, it is certainly NOT what most people think it is.
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You are correct if you say, It is better than not anything. However, one should contrast apples to apples when looking next to foreign banks and how much is kept on reserve to cover failed banking institutions. In many countries, the Central Bank of the country is charged with this blame and the reserve obligation is often as high as 5% or more of each bank’s deposits. In other words, which number is greater, 5% or 1.38%? (See the FDIC information below, whereby in reality only 1.38% is in set aside for the entire insured number of bank deposits).
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What about FDIC, with it’s US$ 29 Billion Dollars (1998 figures) in the bank insurance fund? Well, according to FDIC figures, there are 77 profitable banks with US$ 10 Billion Dollars or more on deposit. This means it only takes 3 out of these 77 very large banks to fail, and the FDIC insurance fund is wipe out once again (See 1991 & 1992 statistics).
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The following information should be very interesting for you, if you have a bank account in the US.
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How many Americans knew that the FDIC Bank Insurance Fund (BIF) was broke in 1991, to the tune of negative US$ 7 Billion Dollars and also broke in 1992 to the tune of US$ 100 Million Dollars? Not only was the bank insurance finance insolvent in these years, it was in the red!
