Personal Finance Blog By MoneyRates - September 2008
September 30, 2008
The presidential candidates agree on at least one issue with both McCain and Obama strategists promoting an increase in the FDIC insurance deposit limit as part of their candidates financial reform platform. Both candidates agree that the insurance limit should be increased from $100,000 to $250,000.
The last time the insurance limit was increased was 1980.
September 30, 2008
It goes without saying that when a bank stock loses over 95% of its share value in just over a year that the bank is facing some trouble. National City Corporation (NCC) is being openly discussed by banking analysts as the next bank with their head on the chopping block. It appears that after the consecutive failures at Washington Mutual Bank and Wachovia Bank in less than a week, that the market is taking a hard look at National City Corp. which fell to $1.25 a share during Monday's trading falling over 50% in one day.
National City spokeswoman Kelly Wagner Amen said the stock decline was a response to problems at other large national banks such as Wachovia and Washington Mutual. "We are far better capitalized than Wachovia and other national banks," Amen said. Some market analysts agreed rating the depressed stock of National City Corp at "outperform". However, the recent trend of bank failures and/or bank takeovers indicates that depositors at National City Bank should be very careful about keeping their deposits below the $100,000 insurance limit.
September 29, 2008
Last week the U.S. Mint temporarily halted the sale of one of their most popular gold coins due to consumer demand. Spokesman for the U.S. Mint, Michael White, announced the suspendedsales of the Buffalo 24-karat gold coin which was first introduced in 2006.
Gold dealers have stated that demand for gold coins has skyrocketed in 2008 with the increased perception that gold is a safe haven in a time of financial turmoil. However, many financial advisors have been in the media that wildly fluctuation gold prices can make investments in gold a harrowing experience despite the multi-year rally in gold prices.
The U.S. Mint has not publicly stated how they will react to the huge increase in demand for their gold coins, although gold dealers are anticipating some new products from the Mint. The U.S. Mint has an online store with a wide variety of coins, medals, commemoratives, and other collectibles beyond the popular gold coins.
September 26, 2008
Hanmi Bank, a California bank with branches in Los Angeles, San Diego, San Francisco, and Silicon Valley, is offering a 3.75% APY on their Worry Free Money Market Account for customer who also open a checking account with Hanmi Bank. The minimum deposit is $10,000 which is also the average monthly balance with must be maintained to avoid a $25 monthly service charge. A nice feature of the money market account is that Hanmi Bank guarantees that the yield will not fall below 3.05% in the year the account is opened. The account can be opened locally or via mail by contacting Hanmi Bank and following their sign-up procedures.
Bank money market rates in general have been steady through the the turmoil in the financial markets in the last few weeks. Financial experts are expecting the rates on bank money market account to continue to compare favorably to mutual fund money market rates which are subject to the lower yields on short-term US Treasuries. The highest rates on bank money market accounts are listed at Money-Rates.com.
September 25, 2008
An online piece on Bloomberg News from reporter David Evans suggesting that the FDIC may need up to $150 billion to cover bank failures has created a stir to the point that the FDIC has directly responded to the article. In the article Evans suggested that the US taxpayer ultimately could end up paying the cost with the FDIC insurance fund currently only holding $45 billion. The FDIC has strongly countered the assumption in the Bloomberg article and has issued the following open letter on their website:
FOR IMMEDIATE RELEASE
September 25, 2008 Media Contact: Andrew Gray (202-898-7192)
Mr. John McCorry
Dear Mr. McCorry:
Bloomberg reporter David Evans' piece ("FDIC May Need $150 Billion Bailout as Local Bank Failures Mount," Sept. 25) does a serious disservice to your organization and your readers by painting a skewed picture of the FDIC insurance fund. Let me be clear: The insurance fund is in a strong financial position to weather a significant upsurge in bank failures. The FDIC has all the tools and resources necessary to meet our commitment to insured depositors, which we view as sacred. I do not foresee – as Mr. Evans suggests – that taxpayers may have to foot the bill for a "bailout."
Let's look at the real facts about the FDIC insurance fund. The fund's current balance is $45 billion – but that figure is not static. The fund will continue to incur the cost of protecting insured depositors as more banks may fail, but we continually bring in more premium income. We will propose raising bank premiums in the coming weeks to ensure that the fund remains strong. And, at the same time, we will propose higher premiums on higher risk activity to create economic incentives for poorly managed banks to change their risk profiles. The fund is 100 percent industry-backed. Our ability to raise premiums essentially means that the capital of the entire banking industry – that's $1.3 trillion – is available for support.
Moreover, if needed, the FDIC has longstanding lines of credit with the Treasury Department. Congress, understanding the need to ensure that working capital is available to the FDIC to provide bridge funding between the time a bank fails and when its assets are sold, provided broad authority for us to borrow from Treasury's Federal Financing Bank. If necessary, we can potentially raise very large sums of working capital, which would be paid back as the FDIC liquidates assets of failed banks. As per our authorizing statute, any money we might borrow from the Treasury must be paid back from industry assessments. Only once in the FDIC's history have we had to borrow from the Treasury – in the early 1990s – and that money was paid back with interest in less than two years.
Finally, Mr. Evans' suggestion that the "government" could ever be "on the hook for uninsured deposits" demonstrates a misunderstanding of FDIC insurance. To protect taxpayers, we are required to follow the "least cost" resolution, which means that uninsured depositors are paid in full only if this is the least costly option for the FDIC. This usually occurs when a bidder for the failed bank is willing to pay a higher price for the entire deposit franchise. We are authorized to deviate from the "least cost" resolution only where a so-called "systemic risk" exception is made. This is an extraordinary procedure which we have never invoked. And again, any money we borrow from the Treasury Department must be repaid through industry assessments.
I am confident in the strength of the FDIC's resources to make good on our sacred pledge to insured depositors. And, remember, no depositor has ever lost a penny of insured deposits, and never will.
Director Office of Public Affairs
Federal Deposit Insurance Corporation