Skip to comments.$1.2 Trillion Of Nervous Money Floods Into U.S. Banking System
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.
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 ...
These people are insane.
I will too. For a nominal fee. :)
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.
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.
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?