Chase and Citibank announced via their websites that they are no longer participating in Federal Deposit Insurance Company (FDIC) Transaction Account Guarantee Program. Both banks are still insured under the general FDIC program, however.
What is the FDIC? It’s the government entity that makes it safer to keep your money in the bank rather than stuff it in a mattress. In the case of a bank failure, your funds deposited in that failed bank are guaranteed and will be returned to you. From the FDIC website:
The Federal Deposit Insurance Corporation (FDIC) is an independent agency of the United States government that protects funds depositors place in banks and savings associations. FDIC insurance is backed by the full faith and credit of the United States government. Since the FDIC was established in 1933, no depositor has ever lost a single penny of FDIC-insured funds.
What does dropping the Transaction Account Guarantee protection mean to you? Actually, you should be pretty scared. Taking a protection away from your hard earned funds is not a good thing. Nor is it a good sign of the health of these banks. Dropping out of the program means that the banks don’t have to be quite as strict with their banking procedures.
What is the difference between coverage under the Transaction Account Guarantee Program and FDIC’s general deposit rules? With the general deposit rules, any account which is covered under the general rules is covered up to $250,000 but above this amount, the funds are not covered. If funds are covered under the Transaction Account Guarantee Program, funds exceeding $250,000 are still covered. It’s sort of double protection.
The fact that Chase is dropping out is not exactly a secret, since they’ve posted it on their website, but I haven’t really seen it in the news or a press release. From Chase’s website:
Beginning January 1, 2010, JPMorgan Chase Bank, N.A. will no longer participate in the (FDIC’s) Transaction Account Guarantee Program. As a result, after December 31, 2009, funds held in non-interest bearing transaction accounts* and IOLTA, IOLA and IOTA accounts will no longer be guaranteed in full under the Transaction Account Guarantee Program. However, these accounts will be insured up to $250,000 per depositor under the FDIC’s general deposit rules…
There is also a link on Citibanks’s website as well.
Note: Beginning January 1, 2010, Citibank will no longer participate in the FDIC’s Transaction Account Guarantee Program. Thus, after December 31, 2009, funds held in noninterest-bearing transaction accounts (non-interest and interest-bearing checking accounts) will no longer be guaranteed in full under the Transaction Account Guarantee Program, but will be insured up to $250,000 under the FDIC’s general deposit insurance rules.
What are all these rules that a bank doesn’t have to follow if they drop out of the program? If a bank decides not participate in the Transaction Account Guarantee Program, they no longer have to certify that they compliant in section 4(k) of the Bank Holding Company Act (4(k). What are 4(k) compliant activities?
Any bank not participating in 4(k) compliant activities means a bank can invest in any company, risky or not, or financial in nature or not. Which means they are taking your money and perhaps gambling with it. They are just trying to duck out of government regulation:
(k) ENGAGING IN ACTIVITIES THAT ARE FINANCIAL IN NATURE.–
(1) IN GENERAL.–Notwithstanding subsection (a), a financial holding company may engage in any
activity, and may acquire and retain the shares of any company engaged in any activity, that the
Board, in accordance with paragraph (2), determines (by regulation or order)–
(A) to be financial in nature or incidental to such financial activity; or
(B) is complementary to a financial activity and does not pose a substantial risk to the safety or
soundness of depository institutions or the financial system generally.
So what about you? Are you going to keep your money in Chase or Citibank (if it’s there)? Are you alarmed by this shift in money protection programs disappearing? Tell us by leaving a comment!
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I don’t really need to worry about this since I likely will never have that kind of money in the bank anyway (unless I win the lottery – lol), but if I did, I would just put no more than $250,000 in one account so the funds remain covered under regular FDIC. If I had more than $250,000, I’d just split it up so that no more than $250K is in one account. I don’t think it’s ever a good idea to put all one’s eggs in one basket, regardless if a bank participates in and an account is covered under the TAGP in excess of $250K or not…..no one account should have that much cash in it…you just never know what can happen. Chase’s TAGP pull-out is mildly noteworthy, but it really shouldn’t involveor concern the majority of Americans unless they have more than $250,000 laying around….and those who do certainly know what to do with their excess funds.
It’s mostly worrying to me that these banks are ready to bail on these programs simply to avoid government scrutiny in some investment of depositors’ funds.
I agree with TJ. I believe that any bank can disappear at any time, so putting eggs in their basket is always shaky at best. FDIC coverage is good as long as the government is able to pay, or better, borrow money to pay. There is no security when you loan money, and putting money in a bank is loaning your money, regardless of what else we think. That’s my .02 ^_^
Anybody who knows anything about our current fiat monetary system knows all about the fraudulent nature of Fractional Reserve Banking and Central Banking in general. And as a result of this knowledge, they’re not likely to be holding large amounts of dollars(or any other paper currency for that matter).
When the global banking cartel lays an egg, and the average Joe wakes up to find that his bank account has gone to zero over-night, or conversely, the money in his account has effectively become worthless, the owners of hard assets like gold and silver will be sitting pretty.
End the Fed!
Be prudent and read the fine print on the contract you signed when you opened your bank account. Find out if it’s 250K insurance per depositor or per account. Also, you are not loaning the Bank money you are giving it to them. You “depose” of your funds when you make a deposit. Look up that term in Black’ Law, you may be surprised. What you did was agree to give them funds and in return all they are required to do is offer you Bank Credit. They will give you FRN’s but if you’re astute you’ll realize that anything lent into existence (Like all Federal Reserve Notes) are debt instruments and not money at all. Dirty little Secret…there is no money…
Here’s another thought…with all the failed Banks in the last two years, do you think that has been taxing on the FDIC? I mean aren’t they the ones who are supposed to garauntee the depositors funds? Well if they been covering all these failed banks, what’s gonna happen when the FDIC fails? Gold and silver are looking pretty good right now, even at $1000 an ounce. Just my opinion.
People that don’t have allot of money should consider a Credit Union.
People that have allot of money should consider going directly to a brokerage.
Using a bank is like using dial up internet, you over pay and they underperform.
The only thing worse than a bank is paying China-Mart or some other Rip-Off paycheck cashing place to get your own money.
The FDIC has been in the red as a result of the systemic failure of American banking industry. These banks are avoiding a fee hike from 10 cents per $100 insured up to 25 cents per $100 insured. Large banks dropping out are Citibank, Bank of America, Chase and Wells Fargo.
I hope the FDIC goes the way of the dinosaur.
In the UK small investors are protected by the Government so it is of no concern to me, but l would say that it is a case of “buyer beware” and that little people should avoid greed and save in safe institutions even if the interest paid is very small. Gold is a very safe one at the moment.
This will be a very interesting year. 2010. Gold over $1500 an ounce. Gas over $4 a gallon again. Housing market continues to decline. Unemployment holds strong at 10% (Fake Number, actual around 16 to 19%). These are my predictions….Oh yeah….didn’t somebody promise to have Gitmo closed and have us out of the Iraq war, and no new taxes, and all of the other empty promises…..So sad. Don’t blame me…I voted for Ron Paul.
Something has to be up or they wouldn’t be doing this. I have heard rumors that the FDIC couldn’t cover Chase’s deposits if they went down anyway because of how huge chase is.
This is kind of scary.. I don’t have over 250k in any bank but if a bank will be willing to risk cheesing off and robbing it’s high end deposit millions in the bank customers… Well then what chance does a small fry like me have?
FYI, FDIC is broke. I wouldn’t pay too much attention to this, it’s just more people trying to avoid some of the byzantine government.
The FDIC is the moral hazard that allows banks to gamble with our money since it is guaranteed. It has also made bank customers complacent on what bank they put their money in. They don’t check into the banks loan practices or other factors. If there is no FDIC we would have to scrutinize the banks that we put our money in, and it would force the banks to be more conservative in their investments.
I find Chad’s comment very interesting. Between the banks and our government, it’s hard to know which is better (or worse) for the general public. Maybe the answer is to let the banks earn the right to hold our money and be accountable to the people who are responsible for the fact they even have a business.
As far as holding $250,000 in any bank, that’s really poor money management, unless someone needs to lose purchasing power. I don’t know anyone who needs that.
We need to change the system, and give to the people whats belongs to it.
If you still have money in one of these “Too Big to Fail” banks, you’re an idiot.
If the banks want it , its to screw depositors. If the Gov’t wants it , its to screw depositors . What to do what to do ? Buy gold silver antiques ? Or go with the greatest of two evils ( Banks aka Gov’t ) , the one who kisses you before “sex” . Say bye bye to bucks
No, I am going to keep my money in a credit union (SMCU), thank you. The money and the Board are all local, so they actually care about minimizing risk. The credit union movement took off in the thirties, when banks were failing and average people couldn’t get loans. Obviously, they’re still a good option.
Andy – good plan!
I do feel a bit less confident in Chase and Citibank after hearing news of them dropping FDIC coverage.. as I bank with Chase and have student loans through Citibank.