For eight decades FDIC has done job government created it to do
Confidence. Next to money, that is one of the most critical "assets" a bank can have. A customer must be confident that his or her bank is strong, safe and properly managed. Regulators must be confident that rules are being followed and managers are good stewards of their customers' and shareholders' deposits and investments.
With the nation's economy struggling, we are seeing a rash of bank failures, including one recently in Kern County. Consumer confidence is being shaken. That reaction is understandable.
But long-established systems are in place to protect consumers. Among those protective systems is the bank-financed Federal Deposit Insurance Corp.
The FDIC was born in the wake of the Great Depression, the greatest financial crisis in this nation's history. The program, which insures interest-bearing bank accounts from losses in the event of a bank failure, has its roots in the Federal Reserve System, which was established in 1913.
The reserve system was established as an attempt to stop the bank panics caused by the economic downturns in the late 1800s. But the bank panic of 1933, during the stock market crash, convinced the White House and Congress that more needed to be done to protect depositors.
Congress and President Franklin D. Roosevelt created the FDIC to provide a federal government guarantee of deposits. The goal was to maintain stability in the banking industry and public confidence. Banks pay premiums to provide this FDIC insurance. Generally, premiums are based on a bank's risk factors.
From time to time, economic conditions have drained FDIC's resources. The savings and loan crisis of the early 1990s and a recession in the 1980s are examples of these times. The current rash of bank failures, partially fueled by residential and commercial real estate losses, is yet another example of when the FDIC funds are being drained.
Earlier this year, the FDIC levied a special assessment on banks to fill its coffers. And it is now proposed that banks pre-pay three years of premiums to again return FDIC funds to levels that will insure customer deposits from existing and anticipated losses.
The Emergency Economic Stabilization Act of 2008 raised the basic limit of federal deposit insurance coverage from $100,000 to $250,000 per depositor. This limit increase has been extended through 2013.
The FDIC protection should give depositors confidence in the banking system. But that does not mean consumers should blithely go about their business without giving their banks another thought.
It is important for consumers to carefully select their banks. Even with FDIC insurance, bank failures and closures can be disruptive to depositors and businesses that rely on bank services. It is important to understand FDIC limits and how they apply to deposits and other accounts.
Banking laws that have evolved over many decades require transparency. In other words, banks are required to report to regulators information about earnings, losses and how money is being invested.
Consumers have access to information about specific banks through Internet sites, such as the FDIC's. Go to www.fdic.gov. In addition, there are a number of reliable Internet sites that rate banks. Check out www.bankrate.com, which uses a star rating. Like the FDIC website, bankrate.com provides a lot of other consumer-friendly information.
Consumers also should follow the news. Watch for stories -- positive stories and negative ones -- about your bank. If you have concerns about what you have read or heard on television, ask your banker for a straightforward explanation.
Reputable, conscientious bankers are always willing to spend the time to address customer concerns. If you can't get straight answers, or worse yet, if your banker is unwilling to meet with you, perhaps you are at the wrong bank. Find a more reliable one.
These are challenging times for the nation's financial institutions and consumers. Rely on sound and trustworthy banks to get you through these times.
Rob Hallum is the manager of Mission Bank's business banking center at 1330 Truxtun Ave. in Bakersfield.
