Vinny’s Blog

Many of you now know about Indy Mac bank and that it has gone corrupt. You can read this in headlines if you simply Google it.

Customers swamp IndyMac to withdraw money

Most are worried about fate of uninsured funds

Christina Hoag, Associated Press

Tuesday, July 15, 2008

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/07/14/BUHQ11P3VC.DTL

Shortly after IndyMac bank failed, FDIC made a very powerful statement. This is a statement you would just like to believe and trust in sincerely.

Deposits ‘overwhelmingly’ safe: FDIC

FDIC insures U.S. bank deposits, so customers should not be overly concerned, agency chairwoman Sheila Blair says.

Last Updated: July 15, 2008: 8:10 AM EDT

WASHINGTON (AP) The nation’s banking system is “absolutely safe” and Americans’ insured deposits in banks protected, the head of the Federal Deposit Insurance Corporation said Tuesday.

They found it’s very important to mention that

“We’ve had five bank closings this year,” Bair said. “I won’t say that banks don’t have challenges right now. They do.” But, she noted, “No insured depositor has ever lost a penny of insured deposits throughout the FDIC’s 75-year history.”

http://money.cnn.com/2008/07/15/news/fdic_deposits.ap/index.htm?postversion=2008071508

So close your eyes imagine how bad could it be if we did not have FDIC, then thank god you have FDIC on your side.

This exactly prompted me to look into how FDIC conducts it’s business.

Few interesting things I found out about this FDIC insurance.

How much money does FDIC insurance has ? - 53 Billion. Now subtract $8 billion out of it (for IndyMac) and you have $45 Billion left.

“The Federal Deposit Insurance Corp. estimated the IndyMac failure, the largest since the collapse of Continental Illinois in 1984, would cost between $4 billion and $8 billion out of the agency’s $53 billion insurance fund.”

http://biz.yahoo.com/ap/080714/mortgage_giants_crisis.html

Let us look at it again……..$53 billion in insurance fund ? that’s it ? What does it mean ? all over US if you take everyone’s money and total it’s 53 billon ? that’s it. The whole country has a combined saving of 53 billon ? That’s hard to believe……Indy Mac bank alone has cost 4-8 billion….let us take the small number here $4 billon if a dozen banks fail with $4 billon each that’s equal to 12×4 = $48 billon (remember only $45 billion left) , that’s the total amount they have and “There are 8,500 banks,” Bair said. “This (IndyMac ) is ( just) one.” Of them

http://money.cnn.com/2008/07/15/news/fdic_deposits.ap/index.htm?postversion=2008071508

How much money is there in all these 8,500 banks ?

As of March 31, the fund was $52.843 billion and insured deposits were $4.431 trillion, which resulted in a reserve ratio of 1.19 percent, 0.06 percentage point below the Board’s target. If the fund falls below 1.15 percent of estimated insured deposits, the FDIC is required by law to adopt a restoration plan that will bring the reserve ratio back to 1.15 percent within five years.

The FDIC board of directors has set a Designated Reserve Ratio of 1.25 percent.

That means their “target” balance for the fund is 1.25 percent of estimated insured deposits.

http://www.courier-journal.com/apps/pbcs.dll/article?AID=/20080715/BUSINESS/80715020

How soon can one get their money in case of a bank default ? If lucky then as soon as possible if not.

It could take years to address claims
Barr said it may take several years before the FDIC completely resolves the collapse and addresses customer claims.

http://www.msnbc.msn.com/id/25673878/page/2/

but remember Deposits ‘overwhelmingly’ safe: Said FDIC

-But knowing what you just read , do you really feel very safe because you have FDIC on your side ?

This is another fine example of how banking business is conducted. With less than $1.20 in pocket (1.19 percent) you can insure and guarantee $100 in deposit.