Yesterday, in "The WSJ on FDIC Insurance," I highlighted a Wall Street Journal article that provided a solid overview of the ins and outs of deposit insurance.
But knowing that people are often loathe to take defensive measures until it's too late, I'm sure that some of those who've heard the warnings and who are aware of the system's shortcomings have not yet done what is necessary.
Well, Edward Harrison over at Credit Writedowns blog had an interesting post, "Two IndyMac Customers Lost Unsecured Deposits," that will hopefully convince those who've been holding back to get off their behinds and do it -- right now.
In further proof that we're back to the Great Depression again, everyone is talking about unsecured bank deposits. Basically, if you have less than $100K at an FDIC institution, you're good to go. If you have more, you'll need to spread the wealth at various institutions.
However what do you do if you're a business and you have payrolls to pay? This story gets to why that's a problem.
Fran Quittel, for instance, owns a small recruiting firm in Emeryville, Calif. She kept her business accounts at IndyMac Bank, including a checking account for receivables and for disbursing payroll, and a savings account.
Thanks in part to the timing of the FDIC takeover -- at that point, clients had deposited payments into her checking account but her payroll had not yet paid out, plus she was temporarily holding funds to pay into a 401(k) -- Quittel lost thousands of dollars in uninsured deposits.
Meanwhile, Andrea Bruno, a San Francisco-based marketing manager for a software company, faces a very different problem. Unrelated to the bank's financial troubles, Bruno contacted IndyMac on Thursday, July 10 -- the day before the FDIC took over -- to close out a Certificate of Deposit that was about to roll over into a new term. Not eager to accept the low interest rate offered on the new CD, she faxed the bank requesting to close the account and have payment mailed to her.
Upon hearing of the bank's demise the next day, she figured her assets were safe, given the timing of her request. But on Monday, July 14, she checked her account online and found $14,500 had been shaved off the top.
To my horror there it was with half the amount over $100,000," Bruno said in a telephone interview. Her request had not been honored, and the bank had rolled the money into a new CD -- minus half the amount that exceeded FDIC insurance. When she called the bank, customer representatives confirmed her fax was received before the bank failure, but no one seemed able or willing to help her recover her lost funds. The FDIC told her to call the Office of Thrift Supervision, the regulator in charge of handling the bank's customer complaints before the FDIC took over IndyMac.
-Market Watch, 28 Jul 2008
No wonder people with unsecured deposits are quietly moving their money out of suspect financial institutions. The next thing you know, people will start stuffing their mattresses again.