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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