Is Your Money Safe?
Fears about the safety of individual savings and nest eggs rose with the faltering of Bear Stearns Cos., an investment bank. The Bear Stearns Co. had to sell, at a drastically reduced rate from just several days prior, to J. P. Morgan Chase and Co. for just $2.00 a share.
In a ripple effect, concerns have grown that the problems on Wall Street could effect commercial banks and their individual depositors. The response to this concern is that bank accounts for individuals are backed by the FDIC. The Federal Deposit Insurance Corp. covers up to $100,000.
The coverage by the FDIC includes trusts, IRAs, certificates of deposit and savings and checking accounts. For accounts, such as retirement accounts, the coverage can be as high as $250,000. Customers of brokerages are similarly protected by a different agency.
The Federal Security Investment Protection Corp. protects the assets of investors at the brokerage firms. So, if your brokerage failed, you would still be covered. Some wonder what the limits of coverage would be by the FDIC if banks failed collectively. In 1991,502 banks failed in three years and the FDIC’s reserve ratio slid as low as negative 0.25%. The FDIC still covered all depositors at failed banks.
Last year, the FDIC was following 76 problem institutions compared with 1991 when that number was 1,430. So 76 banks are relatively easier for the FDIC to cover.
