Bill Bradford: Is the FDIC a guarantee for your bank funds?Published 9:32am Thursday, August 20, 2009
There was no FDIC insurance for deposits. Those who had money deposited in those banks lost it. Gone!
This is not fiction. It happened on March 3, 1933.
For three years depositors had been fearfully withdrawing their funds.
Those withdrawals had weakened the banks by depriving them of cash to make loans. Poor management also played a role in the demise of many of the banks.
Franklin Delano Roosevelt was inaugurated President of the United States for the first time on March 4, 1933.
This was the last time the inauguration ceremony was held in March.
The next day that president declared a “bank holiday” and for four days it was illegal for any U.S. bank to open its doors and do business.
No deposits! No withdrawals! No checks cashed! No loans! If that were today, would it also result in no credit card transactions? Would it also mean no ATM transactions ? Probably.
The four-day bank holiday stopped the run on banks’ cash and gave the government time to evaluate the banks.
Most of the failed banks remained shuttered.
Stronger banks were allowed to begin opening and doing business as early as March 10.
About 1,000 stronger banks opened again for business.
Do you believe it could not happen again? Do you think that the Federal Deposit Insurance Corp. (FDIC) is a safeguard against such an event in our times?
As of now the FDIC is bankrupt! When an insurance company is bankrupt, is it possible that it will not pay claims?
More on that in a moment.
In my May 7, 2009, writing here under the title, “Is your bank safe?”, I detailed how you may get on the Internet and obtain a rating of your bank’s strength.
Do it by going to www.the street.com.
Pull down the menu at “Portfolio & Tools” and click on “Banks & Thrifts.”
The “Find A Bank” menu allows you to type in the first word of the name of your bank and select the state of its location.
Then by clicking on “Go” you will shortly get an A, B, C, D or E evaluation of the bank you entered.
In that May 7 writing I named several local banks which have earned a low rating and are in danger of failure.
I also noted that 1st Source Bank has a “B+” rating and Chemical Bank has a “B” rating.
Now, back to the FDIC.
When I wrote that column published May 7, about 21 U.S. banks had suffered closure this year.
Late Friday, Aug. 14, several U.S. banks were taken over by the FDIC.
One of those banks was the large regional Colonial of Alabama, bringing the total of closed banks this year to 77 so far.
Please do not miss the fact that the number of closed U.S. banks this year has tripled in the last three months.
The FDIC reports that the cost of these recent closures has been $ 14.3 billion.
At the end of the first quarter the FDIC reported that it had $13 billion left in its funds used for insuring depositors’ accounts.
Oops, much larger expenditure than it had on hand.
Thus, the FDIC is bankrupt or will require a congressional bailout (which it will probably receive).
An analyst for the Royal Bank of Canada estimates that the U.S. will have at least 1,000 bank failures this year.
We are now only at 77.
If we take advice from a page in history, people who had their monies in the strongest banks did not lose it in 1933.
Bill Bradford retired to the rigors of a small farm in Pokagon Township.
He has served as director of clinical laboratories in physician group practices and hospitals.
For a decade he was an educator in clinical laboratory sciences at Andrews University.