MNC Financial suffers record $173 million loss Customer losses not current threat, bank experts say

October 26, 1990|By Graeme Browning

An article yesterday concerning insurance for bank accounts provided by the Federal Deposit Insurance Corp. should have noted that $100,000 worth of FDIC insurance applies only to four categories of accounts: 1)joint accounts;2)individual retirement accounts;3)trust accounts for children or grandchildren,up to $100,000 per beneficiary;and 4)the aggregate of all individual accounts held in one bank. Individual bank accounts would be entitled to more than $100,000 worth of FDIC insurance only if they were held in different banks.

The Sun regrets the errors.

It's definitely hard times in the banking industry.

Losses at MNC Financial, Maryland's largest bank holding company, widened in the third quarter, while quarterly profits at Citicorp, the biggest bank group in the nation, slumped 38 percent. Citicorp and Chase Manhattan, the nation's third-largest bank, are laying off employees by the thousands.

If you've got a bank account -- and who doesn't? -- you're #F probably wondering, What about me? Just how safe is my money?


Relax, the experts say. At least, relax a little.

The Federal Deposit Insurance Corp., an arm of the U.S. government, insures individual bank deposits up to $100,000. That means if your bank fails and federal regulators have to close it, you're covered up to $100,000. Period.

Under current law, that $100,000 insurance applies to each bank account you have in a bank, no matter how many accounts or how many banks, said David Barr, a spokesman with the Washington, D.C.-based FDIC.

That means the FDIC also insures up to $100,000 of your children's accounts, the joint account you hold with your spouse, your individual IRA account and any trust accounts you open for your spouse, your children or your grandchildren, Mr. Barr said.

Some banking specialists have suggested cutting back the FDIC insurance to $100,000 total per person in each bank or even simply to $100,000 total per person, but "that would take an act of Congress, and currently Congress doesn't have any legislation pending to do it," Mr. Barr added.

There are two catches to the current insurance scenario, however.

The first is simple: If you have more than $100,000 in a bank account and your bank fails, you become a creditor of the bank for the excess amount. In other words, if you had $125,000 in your account, you get the extra $25,000 back only if the FDIC can sell the failed bank's assets for enough to repay its creditors.

The second catch is a little more worrisome. At the end of June, the FDIC had $11.3 billion in its insurance fund. There are 1,400 banks on the FDIC's confidential list of "banks likely to fail," and some experts say the fund isn't large enough to cover that many failures.

"The FDIC fund probably is deficient," said Joseph C. Reid, who teaches banking law at the University of Baltimore School of Law. "But that doesn't mean individuals will necessarily lose money."

When a bank is on the verge of failure, the FDIC usually finds a healthy bank willing to buy the failing bank and merge with it, Mr. Reid said. Except for a different name above the door of their favorite branch bank, customers would hardly know a change had taken place, he said.

In addition, this year the FDIC increased the insurance premium it charges banks from 8.3 cents for every $100 the bank holds on deposit to 12 cents per $100 in deposits. Next year that premium rises to at least 19.5 cents per $100 an increase expected to generate $4.8 billion, according to Mr. Barr.

As if that weren't enough, the FDIC also has the authority to borrow as much as $3 billion extra for its insurance fund directly from the U.S. Treasury, Mr. Reid of the University of Baltimore said.

The FDIC insurance fund "was never intended to cover all the possible losses. It was meant instead to ensure public confidence so you don't have runs on banks. I think the new money from premiums will help boost that confidence," he said.

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