Insurance Law

    The number of banks closing their businesses so far in 2008 is the highest since 1993:  15.  An additional 117 banks are classified by the Federal Deposit Insurance Corporation as a "problem".  (The FDIC declines to name them.)  In response, the FDIC is reportedly adding a new kind of Insurance.  Ari Levy, "FDIC Lifts Coverage as Customers Flee Sovereign, WaMu (Update 2)" (Bloomberg.com, Tuesday, October 14, 2008).

    One news report has it that the FDIC "will create, essentially, two new insurance programs."  Binyamin Appelbaum, "Smaller Banks Resist Federal Cash Infusions" (Washington Post.com Wed., October 15, 2008).  The first insurance program addressed in this linked newspaper report is not really "new".  It involves an increase in the existing FDIC guarantee of bank deposits from an existing limit set 28 years ago in 1980 of $100,000.00, up to a new limit of $250,000.00 in 2008.  Id.; Ari Levy, supra.

    There is a totally new FDIC Insurance program for "'business transaction accounts like payroll accounts,'" FDIC Chair Sheila Bair stated on October 14, 2008.  It appears to have these  essential features:

1. The FDIC will guarantee certain deposits totaling more than $250,000.00.
2. The new FDIC Insurance program will last through 2009.
3. To qualify, the deposit accounts must not pay interest, i.e., are non-interest bearing.
4. Small businesses are mainly the kinds of depositors who use the qualifying bank deposit accounts.
5. According to FDIC estimates, this new Insurance would guarantee a maximum of $500,000,000,000.00 or $500 Billion or 1/2 Trilion Dollars.
6. Bankers agree (!) that they will all sign up for this new FDIC Insurance program.
7. The banks will pay a Premium on this Insurance Coverage of $0.10 or ten cents for every $100.00 in deposits.

    A separate new Insurance program or guarantee to be issued by the FDIC will protect investors in banks.  Banks subscribing to this additional and reportedly separate new program will pay 75 cents for each $100.00 of debt sold to investors.  Under this new form of relief, through June, 2012 the FDIC will pay all debt "issued" by the subscribing banks before June 30, 2009 if the banks go bankrupt or otherwise default on the debt.    

    With the increased limit on the existing FDIC Insurance program, and with the addition of the new FDIC Insurance program, estimates are reported that as much as 80% of bank deposits, which total some $7,000,000,000,000.00 or $7 Trillion, will now be guaranteed by the Federal Taxpayer Funds used by the FDIC.  The majority of the uninsured remainder of deposits is reportedly a mix of interest-bearing accounts including cd's, which tend to be treated by sellers and regulators alike as "investment products."  Binyamin Appelbaum, supra; Ari Levy, supra.

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