for the Federal government to STOP meddling in sustainable capital markets, and a return to sane, job-generating lending activities.
Posted on 09/18/2011 3:34:36 PM PDT by fightinJAG
With the European banking system tottering on the brink of collapse, nervous holders of cash have flooded the U.S. banking system with $1.2 trillion of deposits. Panicky holders of large amounts of cash are taking advantage of a provision of the Dodd-Frank Act that provides unlimited FDIC insurance coverage on noninterest-bearing transaction accounts.
The Dodd-Frank Act provides unlimited deposit insurance coverage regardless of the account balance or type of ownership. [snip]
After the near total meltdown of the financial system in 2008, investors are taking steps to move their money into government guaranteed accounts. The revelation that money market funds run by Fidelity and Vanguard had a significant portion of their assets invested in European bank debt contributed to the deposit surge into U.S. banks.
[snip]
Normally banks would love to have interest free money but these are not normal times. . . . Since the Federal Reserve has forced interest rates to zero on the short end, banks are actually charging fees to accept large deposits to offset the FDIC deposit insurance assessment fees.
Depositors are so worried about the safety of their money, they are willing to pay the banks to hold their money. The banks, unable to profitably invest the funds, would just as soon not take the deposits.
The amount of deposits insured by the FDIC has surged since last year. For the quarter ending June 20, 2011, the FDIC insured deposits of $6.54 trillion, up 20.7% from $5.42 trillion at September 30, 2010. Backing up the FDIC insurance coverage of $6.54 trillion of deposits is the FDIC Deposit Insurance Fund which has a balance of only $3.9 billion for a reserve ratio of a minuscule 0.06%.
(Excerpt) Read more at problembanklist.com ...
It's Utopia.
The money flows in quickly, but it will also flow out quickly once the danger of European collapse is over.
This is also why the stock market has been going up in the last several weeks.
Since we are buying Euros with dollars, what could go wrong? ;-)
Investors haven't seen it before and have no idea what the outcome might be. We had this in the beginning of this crisis and now we are doing it again.
That equates to an enhanced risk, IMHO.
If people are nervous about their cash, I will hold it for them.
And banks aren’t lending because Justice continues to accuse them of “redlining.” Somebody tell Holder (and the Prez) that credit scores have no skin color.
No lending means no small business start ups. That means no employment growth, and BIG DEMOCRAT LOSSES in 2012!!!!!
Interestingly, why aren't the Europeans putting their money in the Big Four Chinese banks? Is it they realize the Chinese banks aren't much safer than the European banks?
In $100K increments?... or whatever the new FDIC limit is now.
And what happens to this money should the US find itself in a crisis at some point while Europe takes a dive? Some of these guys in goverment and on Wall Street might see an opportunity to steal it especially if its the banks themselves that are in trouble. We certainly would become very unpopular after such an event. It’s an opportunity the left and Obam would love to have to hurt America even more.
Unfortunately, the Libs haven’t figured out how the system works, yet.
I have heard them mention the banks and liquidity but nothing happens.
Never mind. Should have read the article.
Unlimited — wow! That seems like a train wreck in which us little people (small depositors) will get screwed and the big cronies are covered.
Well, I guess their money can collapse right along with ours.
I'd like to get hold of that Chinese guy who promised I would live in "interesting times".
This is not a direct reply to you. I urge folks to check out their bank’s rating. Google Bauer Bank ratings.
Under 4 stars is not great. 2-2.5 would run me off.
This is not a direct reply to you. I urge folks to check out their bank’s rating. Google Bauer Bank ratings.
Under 4 stars is not great. 2-2.5 would run me off.
Why should banks pay interest anymore? Its all free $$. In fact, they should CHARGE for keeping the $$ safe.
You know where this is going. Almost as if its been engineered that way.
>> “The money flows in quickly, but it will also flow out quickly once the danger of European collapse is over.” <<
.
Do you believe in fairy godmothers?
The ‘danger’ of European collapse will be over when the collapse is complete. That collapse will take with it some of our largest banks.
We do not need the FDIC to be further burdened by this well placed panic. FDIC should be limited again.
These people are insane.
I will too. For a nominal fee. :)
for the Federal government to STOP meddling in sustainable capital markets, and a return to sane, job-generating lending activities.
Dodd-Frank dangers and the case for a systemic emergency fund
Dodd-Frank is a Lead Lifejacket strapped to this country.
my point is that banks are “earning” interest on reserves which are based upon (among other things) deposits.
You said it so much more politely than I was going to...
I understand. Should have added the [/s] in my response for sarcasm.
Great catch.
Europeans are cashing out their Euros so as to deposit them as dollars in American banks AND, thereby, get those funds "insured" (backstopped) by U.S. taxpayers.
At the same time, U.S. taxpayers are buying Euros, thus giving Europeans more and cheaper dollars with which to stake a claim against the U.S. treasury through the FDIC.
Good grief.
To what, specifically, are you referring? That fact that we have substantially enlarged the exposure of U.S. taxpayers through the FDIC?
In my view, one of the major reasons banks are not lending is that there is no demand.
There’s been a severe and sustained contraction in discretionary consumer spending and that leads to a contraction in the real economy.
Very few businesses have the demand to justify building new infrastructure, replacing equipment, etc.
Except, of course, Boeing.
Do the Chinese banks have something similar to the FDIC insuring their depositors’ accounts?
The reason people deposit in American banks is that, if the whole place goes belly up, they at least have a shot at getting a bailout by the US taxpayer.
If your money didn’t earn anything invested, and you had the choice between a bank where you could still lose it all and a bank where, if you lost it all, the U.S. government was on the hook to made you whole for all you lost, you’d go with the U.S. bank.
That’s what’s happening here.
It’s $250,000 now, I think. And, yes, “sophisticated investors” (the article’s term) are breaking their wads up into accounts so that each account balance is under the FDIC limit.
In fact, many financial advisors tell people to do that (have multiple accounts) if for some reason they want to keep cash reserves above the FDIC limit.
So what’s happening here is that seemingly the entire world is positioning itself to make a claim on the U.S. Treasury (taxpayer) should the global financial system go bust.
Thanks, Obama, Dodd and Frank.
Oh, yes, I misread your question. Yes, unlimited if it’s non-interest bearing.
But even in interest bearing, there are individual investors who break up their cash reserves into multiple FDIC-insured accounts.
Yes, but when everybody’s money collapses, the U.S. government (taxpayer) is still stuck with its promises as an “insurer” of that money.
Will the U.S. tell everybody in the world that deposited into FDIC-insured accounts “too bad, the global banking system is hosed,” or will it frantically try to print even more money and find even more ways to mortgage our future?
The amount of deposits insured by the FDIC has surged since last year. For the quarter ending June 20, 2011, the FDIC insured deposits of $6.54 trillion, up 20.7% from $5.42 trillion at September 30, 2010. Backing up the FDIC insurance coverage of $6.54 trillion of deposits is the FDIC Deposit Insurance Fund which has a balance of only $3.9 billion for a reserve ratio of a minuscule 0.06%. Not exacting a reassuring amount of protection as we appear to be sliding towards a financial crisis that could be multiple times worse than 2008.
May I suggest you post that as a stand-alone thread? It deserves more visibility and specific discussion.
The banks are going to charge for the privilege of depositing money there. 1, because they can’t loan it out anyway (no demand and it’s not long-term deposits) and 2, the banks have to pay an assessment (sort of like an insurance premium) to the FDIC for each dollar on deposit.
The banks are going to pass on that FDIC charge (at the minimum) to depositors. And depositors will likely not balk too much. To them, it’s a small fee for insurance and if the bank goes under, then they get paid by Uncle Sam. That’s a much better deal than anything they could risk it on in the market.
And no FDIC!
Does anyone believe the ChiComs would be stupid enough to offer basically FREE INSURANCE guaranteeing the ENTIRE BALANCE OF ONE’S BANK ACCOUNT to anyone who walked in off the street and plunked down a wad of cash?
And then ENLARGE that exposure of the U.S. taxpayer during the worst financial collapse since Great Depression?
Not necessarily. They are only earning interest on reserves if they are able to lend them out and turn a profit on the loans, which they are not at the momemt.
Moreover, the deposits COST the banks money because they have to pay a fee to the FDIC for every dollar on deposit.
So the banks are not making money on the deposits (no loans are being made due to ZERO DEMAND in the real economy) and they are having to shell out money on the deposits to feed the FDIC.
Sadly, I think that’s exactly where we are going.
Nothing but high stakes international 3 Card Monty to skim the cream and steal as much as fast as they can......to steal the fiscal futures of the working man.
The FDIC amount goes back down to $100K 01/01/2014 ....posted on their site.
In fact, there's also another problem: Chinese banks, unlike American banks, a also highly-leveraged, too. One wrong move in the Chinese economy and those banks will collapse like a house of cards.
Indeed, one good thing about what happened in 2008 was it forced American banks to stop being so highly leveraged. A bank like JPMorgan Chase quickly went out of their way to use TARP money to rebuild their asset base, paid the TARP loan back quickly, and as such they will likely be around for a long time to come. Indeed, do not be surprised that many European banks now suffering from the European sovereign debt crisis could become takeover targets for American banks a few years from now.
Go for it. I’m at work this a.m.
I think that is already happening. You can't build whole cities and 65 million apartments and leave them empty. That is not a productive use of the nation's investment capital.
Or just as bad, high-speed trains that only relatively few people can afford to ride in and have an iffy safety record....
-.02 but improving.
Empty factories, empty apartments, empty cities, empty malls, high speed infrastructure boondoogles. Command economies do not work. Command economies on this scale will fall big and fall hard.
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