Why did the FDIC raise the insurance??? What purpose does it serve??? How?
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ANSWERS: 4
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This is temporary till 12/31/09. I would think people put more then $100,000 in accounts, so when the banks failed, they pulled out over that for fear of losing it. Now that it's $250,000, the FDIC will insure that much. People are unaware that you may keep over $100,000 at a bank as long as the accounts are in different names and IRA'S are separate.
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FDIC insurance protects the savings or assets of individuals or businesses. In addition, by guaranteeing those assets runs on banks are prevented. - In theory, multi-millionaires are more sophisticated than the rest of us and can better protect themselves. Also there is a program subscribed to my some banks called CDars. It is a method of taking your funds (up to $50 million) to one bank who then spreads it out among enough banks so that the depositor never has more than $100,000 (now $250,000) in any one bank. This is useful for businesses who need cash on hand and also for some wealthy people. - Or if a middle class person had more than $250K he or she could use the same program.
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I was a bank manager for years and you will be surprised at how many people kept hundreds of thousands of dollars in their banking accounts/large CDs or how paranoid people can be. The FDIC temporary increased the insurance so people won't make runs to the bank that could be in danger of failing. Earlier this year, I saw millions of dollars being moved from Wachovia to BoA when news that Wachovia was in serious trouble started to spread and people freaked out. Also, I saw a customer come in and wirthdrew $150k in cash from her bank account to put the money under her mattress. The FDIC is trying to stop all the bank runs or potential bank runs. When Wamu was about to collapse, before they got bought out by JP Morgan, they lost over 56 millions in deposits for the exact same reasons.
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