When Bank of New England was seized Sunday, the Federal Deposit Insurance Corp. extended full coverage to all accounts--including about $2 billion held in accounts above the $100,000 limit. The aim was to stem a run on deposits and bolster consumer confidence.
But the regulators' seemingly well-intentioned motives served only to underscore a growing debate and fury in some segments of the banking industry that federal deposit insurance is selectively and unfairly awarded to account holders exceeding the insurance fund's own rules.
Depositors in banks deemed "too large to fail" are exempted from the rules, unlike savers in smaller banks where the failure isn't likely to undermine the nation's banking confidence or cause a national uproar, critics charge.
What are the rules? When are they applied? Who breaks them? Here's a quick rundown on FDIC insurance policies and their application:
Question: What are the FDIC insurance rules?
Answer: They are far too complicated and lengthly to repeat here in their entirety, but to be absolutely safe, remember the Rule of One: one bank, one person, one account under $100,000.
Of course there are variations. Individual retirement accounts and Keogh accounts are insured separately from checking and savings accounts. A full copy of the rules may be obtained from your bank or the FDIC Regional Office, 25 Ecker St., Suite 2300, San Francisco, Calif. 94105.
Individual savers, unsure of the rules or nervous about the safety of their institution, should heed the oft-repeated advice to spread their money around to several institutions rather than risk losing any of it.
Q: What kind of accounts typically exceed the limits?
A: According to Veribanc, a firm that rates banks' financial strength, about $570 billion of the $2.8 trillion held in U.S. banks as of last June 30 was held in accounts exceeding $100,000. No precise breakdown of this amount exists, but analysts say it is divided among three large groups of depositors: corporations, governmental bodies and "large net worth" individuals.
Because of their need for quick and regular access to huge sums to meet payroll, dividend, pension and other payment requirements, governmental agencies and corporations typically maintain accounts that exceed the insurance limits.
