American Banks

With dire economic news being released every day, it’s natural to wonder whether the money you’ve deposited in American banks is safe.

Federal Deposit Insurance Corporation – FDIC

It’s guaranteed by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per account. This level was raised from $100,000 by the Bush Administration in the fall of 2008, when the economic crisis was in full throttle.

The FDIC was formed on January 1, 1934, as a reaction to the run on banks caused by the Great Depression. Since that time, no depositor has lost a cent of insured funds.

Bank Failures And Run On Banks

While a handful of bank failures have made national news, most notably Indy Mac in 2008, in 2008 only 25 banks closed across the United States, and as of March 2009, another sixteen had failed.

Typically, when the FDIC realizes that a bank is in trouble, it will arrange a merger or takeover with another bank. Occasionally, that news becomes public, causing a run on the bank, which further exacerbates the troubled bank’s woes as customers line up to withdraw their money.

TARP – Troubled Assets Relief Program

In November 2008, the Bush Administration poured $700 billion into the weakened banking system, a program known as Troubled Assets Relief Program (TARP). That money was designed to get money flowing again, in a time when credit had all but frozen. The “troubled assets,” for most lenders, was a reference to the billions of dollars in mortgages on houses that weren’t worth the amount of the loans.

Bank Stress Tests

In early 2009, the Obama Administration began a complicated process of applying “stress tests” to banks, in an effort to determine which ones were healthy, which ones could survive if they were given more capital, and which ones were doomed to fail. Those results are expected to be released in May 2009.