Resources from the IBA
FDIC Publication Helps Consumers Understand Their New, Higher Deposit Insurance Coverage
IBA introduces new print advertisement for members
Consumer Q&A: Mergers & Takeovers
Consumer Q&A: Fannie/Freddie Takeover
Strength of the Iowa Banking Industry Fact Sheet
Key Messages for Employees and Customers on Bank Safety
Safety and Soundness of the Banking Industry
Questions & Answers on the ‘Banking Crisis’
Consumer Education Statement Stuffers
Additional Consumer & Banker Resources
FDIC Publication Helps Consumers Understand Their New, Higher Deposit Insurance Coverage
Latest Advice on How to Be Fully Protected is Available Free
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With banks and the economy in the news so much lately, many people are thinking more about the safety of their money. The good news for consumers is that federal deposit insurance coverage has significantly increased, primarily as a result of a temporary boost in the basic insurance limit from $100,000 to $250,000. That's also why the Federal Deposit Insurance Corporation has issued an explanation of the new changes along with tips and information to help bank customers better understand their insurance coverage and how to be sure all their deposits are fully protected.
The advice was published as a special edition of the agency's FDIC Consumer News (the Fall 2008 issue) entitled "Your New, Higher FDIC Insurance Coverage: How You Can Be Fully Protected." Among the key points made in the new publication:
- The basic limit on federal deposit insurance coverage has been temporarily increased from at least $100,000 to at least $250,000 per depositor. But as always, a depositor may qualify for more than the basic insurance coverage at one insured bank because the FDIC provides separate insurance coverage for deposits held in different "ownership categories," such as single and joint accounts.
- By law, the basic FDIC insurance limit will return to $100,000 on January 1, 2010. That means all the deposits a consumer has at a bank in his or her name alone will be fully insured up to $250,000 through December 31, 2009. After that date, the depositor will only be insured up to $100,000, with any balance over that limit becoming uninsured. However, it is important to remember that additional coverage may be available depending on how accounts are held, such as when deposits are owned jointly with another person. The reduction in coverage starting in 2010 will not affect certain retirement accounts, which will continue to be protected up to $250,000.
- The FDIC has eased the rule governing "revocable trust accounts" that pass to named beneficiaries when the account owner dies. No longer does the FDIC consider only the account owner's spouse, child, grandchild, parent or sibling as "qualifying beneficiaries" for additional insurance coverage ($250,000 if there is one beneficiary, $500,000 if there are two, and so on). Now, an account owner can name any person or charity as a beneficiary and the owner will qualify for the additional deposit insurance coverage.
- Through year-end 2009, certain checking accounts at participating banks will be fully insured by the FDIC, no matter how much money is in them. This special insurance coverage applies only to no-interest checking accounts and certain other low-interest transaction accounts, and only at participating institutions.
Other articles describe various steps depositors can take to be sure they're fully protected by FDIC insurance, why and how to use the FDIC's online deposit insurance calculator called "EDIE," and common misconceptions depositors have that can inadvertently result in being over the federal insurance limit and at risk of loss if their institution fails.
"Your New, Higher FDIC Insurance Coverage" can be read or printed at www.fdic.gov/consumers/consumer/news/cnfall08. To order up to two free paper copies, use the online form on that same Web page or call the Federal Citizen Information Center toll-free at 1-888-8- PUEBLO (1-888-878-3256) weekdays from 8:00 a.m. to 8:00 p.m. Eastern Time and ask for Department 89.
The goal of FDIC Consumer News is to deliver timely, reliable and innovative tips and information about financial matters, free of charge. Current and past issues of FDIC Consumer News, including previously published special editions, are online at www.fdic.gov/consumernews.
There also are two ways to subscribe to the quarterly FDIC Consumer News. To receive an e-mail about each new issue with links to stories, go to www.fdic.gov/about/subscriptions/index.html. To receive the newsletter in the mail, free of charge, call the FDIC toll-free at 1-877-275-3342, send an e-mail to publicinfo@fdic.gov or write to the FDIC Public Information Center, 3501 North Fairfax Drive, Room E-1002, Arlington, VA 22226.
The FDIC encourages financial institutions, government agencies, consumer organizations, educators, the media and anyone else to help make the tips and information in FDIC Consumer News widely available. The publication may be reprinted in whole or in part without advance permission. Organizations also may link to or mention the FDIC Web site.
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Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insures deposits at the nation's 8,384 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring and addressing risks to which they are exposed. The FDIC receives no federal tax dollars – insured financial institutions fund its operations.
FDIC press releases and other information are available on the Internet at www.fdic.gov, by subscription electronically (go to www.fdic.gov/about/subscriptions/index.html) and may also be obtained through the FDIC's Public Information Center (877-275-3342 or 703-562-2200). PR-130-2008
IBA introduces new print advertisement for members
To help you communicate with customers during the current economic crisis, the IBA will run the attached print advertisement in eight major Iowa newspapers on Friday, October 3. The full-page, full-color advertisement reminds consumers that Iowa banks are safe and secure and that accounts are FDIC insured. The advertisement will run in the Council Bluffs Nonpareil, Cedar Rapids Gazette, Quad City Times, Des Moines Register, Dubuque Telegraph Herald, Iowa City Press-Citizen, Sioux City Journal and Waterloo-Cedar Falls Courier.
We encourage you to run the advertisement in your local paper(s) at your expense. In markets that are competitive, we encourage all banks to work together in a cooperative ad that shows industry unity.
We believe the media spotlight will continue to shine on Iowa banks and on the economy and we’re here to help our members. Below are a listing of different size options.
Consumer Q&A: Mergers & Takeovers
The recent bankruptcy of Lehman Bros. and other mergers and takeovers involving investment banks may have your customers confused and worried. Below are commonly asked questions and answers. The Iowa Bankers Association (IBA), working with the American Bankers Association (ABA) provides this information to our member bankers.
Q&A:
How Do Recent Failures, Mergers and Takeovers Affect Me?
Q. Where is the safest place for my money right now?
A. The safest place for your money is in your local, community bank. It's FDIC-insured, readily accessible, and may earn interest.
Q. How will the recent failure of Lehman Bros. affect me?
A. Unless you invested money with Lehman, you will not be affected. And if you did, Barclays Capital has announced that it plans to acquire the U.S. brokerage arm of Lehman, so all customers should be protected. Even if Barclays had not agreed to acquire Lehman Bros. brokerage, customers would still get back all the securities that are registered in their name and further protection would have been provided by the Securities Investor Protection Corp. which could have provided additional funds to satisfy each customer's claims up to $500,000. Of course, there will be economic factors that will affect us all, but Lehman is an investment bank, not a commercial bank.
Q. What's the difference between an investment bank like Lehman and my bank?
A. Investment banks operate differently from commercial banks and thrift institutions. Their primary purpose is to facilitate the sale of stocks and bonds. These Wall Street firms operate as advisers and agents for companies that want to raise capital, often by issuing more stock or other securities.
Commercial banks and thrift institutions take deposits for checking and savings accounts from consumers and businesses. These deposits are insured by the Federal Deposit Insurance Corporation. The Emergency Economic Stabilization Act of 2008 signed into law by President Bush on October 3, 2008, temporarily increases the basic FDIC insurance coverage amount per depositor from $100,000 to $250,000 until December 31, 2009. Commercial banks and thrifts lend this money to consumers and companies for autos, homes, business equipment, etc.
Q. Should I be worried about the health of my bank?
A. With 98 percent of nation's 8,500 banks considered "well capitalized" – the highest designation possible – the possibility of your bank being taken over by the FDIC is extremely remote. And if it did happen, you would continue to have uninterrupted access to your FDIC insured deposits.
Q. How do I know I won't lose money?
A. Customers' bank deposits are protected. Not one penny of insured savings has ever been lost by a customer of a federally insured bank. The Emergency Economic Stabilization Act of 2008 signed into law by President Bush on October 3, 2008, temporarily increases the basic FDIC insurance coverage amount per depositor from $100,000 to $250,000 until December 31, 2009. If you need more coverage, your banker can explain your coverage limits and give you options to ensure that all of your deposits are insured.
Q. What about lists that predict the next bank failures?
A. The only list that matters is the one from the FDIC, which has a more thorough and complete picture of a bank's safety and soundness. It's important that this list be kept confidential, because, on average, the vast majority (87 percent) of banks on this list come back to healthy status.
Q. Will I still be able to get a mortgage, credit card or other loan?
A. People with a good credit history will continue to have access to mortgage, credit card and other types of loans. Appropriately, most banks are taking steps to limit risk in the current economic environment, so they have tightened lending standards. That's why it's more important than ever to monitor your credit report and keep your credit score in the "good" to "excellent" range.
Q. How does the recent takeover of Fannie and Freddie affect bank customers?
A: If you already have a mortgage, nothing will change. If you are thinking of buying a home or refinancing a mortgage, the government takeover will help stabilize rates. With explicit government backing, Fannie and Freddie can continue to buy mortgages, hold them in portfolio or sell them into a functioning mortgage market. Mortgage rates nationally have already come down, making it easier for homebuyers to qualify and for homeowners to refinance high-priced loans.
For more information about the FDIC and the safety of bank deposits, visit www.myfdicinsurance.gov.
CONSUMER Q&A: FANNIE/FREDDIE TAKEOVER
Is your bank getting calls from concerned customers, employees or board members on the recent takeover of Fannie Mae and Freddie Mac? Studies show that people tend to be anxious if they don’t understand how current events affect them. Your bank can help alleviate this anxiety by providing this Q&A created by the American Bankers Association. Please feel free to tailor it to fit the needs of your institution.
IBA suggested brief/media statement
Iowa bankers acknowledge the decisive action taken by the U.S. Treasury to rescue Fannie Mae and Freddie Mac. Consumers should feel confidence that this solution will help to stabilize much of the mortgage industry and help our economy.
Because Fannie Mae and Freddie Mac play a critical role in the nation’s economy – and make homeownership available for millions of Americans – the federal government’s actions will help speed the recovery of the nation’s housing market.
Fannie, Freddie Rescue Plan Announcement, September 8, 2008
The Treasury Department and Federal Housing Finance Agency announced Sunday a plan to rescue Fannie Mae and Freddie Mac that would place the two government sponsored enterprises into conservatorship, replace their CEOs, purchase mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, provide a secured lending credit facility for GSEs, and inject capital to bolster the companies' ability to attract investors and continue funding mortgages.
In announcing the actions, Treasury Secretary Henry Paulson said they are "the best means of protecting our markets and the taxpayers from the systemic risk posed by the current financial condition of the GSEs."
Under the plan, Treasury and the FHFA will purchase senior preferred stock as needed to ensure each company maintains a positive net worth. Common and preferred stock dividends will be suspended, but preferred stock claims will be maintained ahead of common stock. This as-needed infusion of capital minimizes taxpayer liability, but it also puts new government senior preferred stock and warrants ahead of preferred and common shareholders in claims on the GSEs. Treasury warrants will total 79.9 percent of the equity of the GSEs, insuring significant dilution of the common stock. All debt, including senior and subordinated, will be protected.
Federal banking regulators are reviewing the exposures of banks and thrifts that hold common and preferred shares. Such exposures are not uniform, but can be significant. The bank regulators indicate that they do not believe bank holdings of the GSEs' stock is large enough to cause major risks to the banking system, but that some individual banks may hold enough to materially affect their capital levels. The agencies encourage institutions to contact their primary federal regulator if they believe that losses on their Fannie or Freddie holdings, whether realized or unrealized, would reduce regulatory capital below "well capitalized."
Treasury's establishment of a new lending facility to extend credit to Fannie and Freddie as needed will ensure that the companies can cover large amounts of debt that mature and must be rolled over each month. Paulson also said that the government's temporary purchase of some of the GSEs' mortgage backed securities, which will begin later this month and continue as needed, will help to ensure the affordability of mortgages while minimizing taxpayer exposure.
While the recently enacted housing/government sponsored enterprise law gives the Treasury secretary the authority to purchase the companies' equity or debt securities, Treasury Secretary Henry Paulson had previously said he did not expect to use it. But investor confidence has eroded so much in recent weeks, particularly after a Barron's article in August predicting a government recapitalization of the institutions, that action became necessary.
In detailing the FHFA's conservatorship plans, Director Jim Lockhart announced that Herb Allison, a former vice chairman of Merrill Lynch and chairman of TIAA-CREF, will be the new CEO of Fannie Mae, and David Moffett, former vice chairman and CFO of Minneapolis-based US Bancorp, will take over at Freddie Mac.
Read U.S. Treasury Secretary Paulson’s statement at http://www.treas.gov/press/releases/hp1129.htm
Read fact sheets on each of the actions Treasury and FHFA announced at http://www.treasury.gov/news/index1.html
The Strength of the Iowa Banking Industry
Revised July 16, 2008
Iowa Banking Facts
- Iowa banks are highly capitalized and prepared for economic fluctuations. Iowa’s Superintendent of Banking reports that Iowa banks’ capital-to-asset ratio is 9.5% which is substantially higher than the national average. Ninety-five percent of Iowa banks are rated in the top two categories on a 1-5 scale and there are no five rated banks.
- Customers’ deposits in Iowa banks are protected. All deposits are insured by the FDIC. The Emergency Economic Stabilization Act of 2008 signed into law by President Bush on October 3, 2008, temporarily increases the basic FDIC insurance coverage amount per depositor from $100,000 to $250,000 until December 31, 2009. For more information, refer to the FDIC website (www.fdic.gov).
Federal Actions
- Fannie Mae and Freddie Mac are the two largest mortgage buyers in the country. They were created by Congress in 1970 to buy mortgages from lending institutions and then either hold them in investment portfolios or resell them as mortgage-backed securities to investors. The Federal Reserve and the Treasury Department have announced actions to stabilize Fannie Mae and Freddie Mac whose capital levels remain strong despite a drop in their stock prices. The announcement was intended to reassure the capital markets of the viability of the two entities and their ability to provide ongoing liquidity to the mortgage market. Report indicate it has had a stabilizing effect and to date the turmoil does not appear to have significantly impacted the Iowa mortgage market as rate locks are being honored and loans are being made.
- Congress has passed comprehensive housing legislation that combines regulatory reform of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The legislation also provides $300 billion in new lending authority to refinance troubled mortgages into long-term, fixed rate loans.
Iowa Mortgage Facts
- 83% percent of mortgage loans in Iowa have been made to prime borrowers and only 7% are either fixed or adjustable rate sub-prime loans. Sub-prime loans with adjustable rates (ARMs) are where the bulk of problems are nationwide. Iowa has only .03% sub-prime ARM loans.
Key Message for Employees and Customers on Bank Safety
The vast majority of banks in this country are safe and sound.
- Banks are required to have significant capital and reserves – that is, rainy-day funds for tough economic times. This is a bank's first line of defense to cover any losses.
- FDIC insurance provides an additional backstop. The FDIC protects depositors against the loss of their insured deposits if an FDIC-insured bank or savings association fails.
- The FDIC insures deposits in its member banks. The Emergency Economic Stabilization Act of 2008 signed into law by President Bush on October 3, 2008, temporarily increases the basic FDIC insurance coverage amount per depositor from $100,000 to $250,000 until December 31, 2009. The expanded insurance limits are available to all accounts whether owned individually, jointly, in a fiduciary capacity, retirement accounts or by a business.
- No customer has ever lost a penny in insured deposits when a bank has failed.
Most banks have been in existence for decades and are likely to be in existence for many more.
- The banking industry is diversified, with more than 8,500 banks serving customers every day at 97,000 locations nationwide. Iowa has more than 410 banks and more than 1,200 branch locations serving consumers.
- The chances of a bank being taken over by the FDIC are extremely remote. And if that did happen, you would continue to have virtually uninterrupted access to your insured deposits.
- Our bank remains ready, willing and able to meet the needs of our community and serve our customers.
Safety and Soundness of the Banking Industry
Banks are highly capitalized and prepared for economic fluctuations
- Banks are well-positioned to handle economic downturns, and if necessary, take steps to put losses behind them.
- Customers’ deposits are protected. The Emergency Economic Stabilization Act of 2008 signed into law by President Bush on October 3, 2008, temporarily increases the basic FDIC insurance coverage amount per depositor from $100,000 to $250,000 until December 31, 2009. The expanded insurance limits are available to all accounts whether owned individually, jointly, in a fiduciary capacity, retirement accounts or by a business.
- Banking’s capital – which serves as a buffer against any losses – is at historic highs. As of March 2008, the industry held $1.36 trillion in capital plus $120.9 billion in reserves for a total buffer of $1.48 trillion.
- Banks have experienced strong growth in loan performance over the past six years, supporting a growing economy.
Bank risk management has improved dramatically
- Banks have increasingly put enterprise-wide risk management processes in place, increased the use of sophisticated risk-management systems and tools, and implemented strong schemes of checks and balances.
- Advances in collecting data and benchmarking performance, identifying key risk indicators, and controlling operational risks have all contributed to sound banking.
Regulation and supervision of bank risk has also improved
- Federal laws adopted since 1991 have significantly strengthened bank regulation.
- The regulators have also fortified examination practices. They adopted a supervision-by-risk approach to get bankers and examiners to focus on the quality of risk management systems and have continued to advance expectations for risk management.
- Auditing and internal control standards have also toughened.
Banks have resources to meet the needs of their communities
- Banks play an integral role in local economies across the nation. With $8.4 trillion in deposits, banks have plenty of resources to meet the lending needs in their communities. Banks put these monies to work in their communities by providing loans and other financial services.
- Many people are turning to their local bank to help refinance existing mortgages or consolidate other forms of debt. Banks made $200 billion in new loans in the fourth quarter of 2007, $80 billion of which were loans secured by real estate, demonstrating that the local bank continues to be the best source of business and personal loans.
- Our diversified industry of more than 8,500 banks with 97,000 locations nationwide stands ready to serve customers. The vast majority of banks have been in existence for decades and plan to serve their customers for many, many more.
Questions & Answers on the 'Banking Crisis'
QUESTION: Is there a banking crisis?
ANSWER: Let's set the record straight: The banking industry – traditional federally insured, federally regulated depository institutions which include your local commercial bank, thrift or savings bank -- is safe and sound. And your account in commercial banks, thrifts and savings banks carry FDIC insurance.
QUESTION: How do we know that?
ANSWER: Federally regulated banks are required to employ underwriting practices to avoid losses and to promote safe and sound operations. And when they do not operate appropriately, their regulators, who visit them annually, will take exception to such practices and require corrective action.
QUESTION: What if there is a bank failure?
ANSWER: Customers' deposits are protected. Not one penny of insured savings has ever been lost by a customer of a federally insured bank. The Emergency Economic Stabilization Act of 2008 signed into law by President Bush on October 3, 2008, temporarily increases the basic FDIC insurance coverage amount per depositor from $100,000 to $250,000 until December 31, 2009. The expanded insurance limits are available to all accounts whether owned individually, jointly, in a fiduciary capacity, retirement accounts or by a business.
QUESTION: Don't my tax dollars go to the FDIC?
ANSWER: No. The FDIC receives no federal tax dollars-insured financial institutions fund its operations. Congress created the Federal Deposit Insurance Corporation (FDIC) in 1933 to restore public confidence in the nation's banking system during the Great Depression. The FDIC insures deposits at the nation's 8,451 banks and thrifts and it promotes the safety and soundness of these institutions. FDIC Chairman Sheila Bair reminds consumers, "The entire capital of the banking industry stands behind the (FDIC) fund, as does the full faith and credit of the United States Government. The public can be sure that we will always have enough money to protect their insured deposits."
QUESTION: Are banks prepared for economic downturns?
ANSWER: Virtually all banks in this country are safe and sound. Banks' capital and reserves – that is, rainy day funds for tough economic times – totaled $1.48 trillion as of March.
QUESTION: Who regulates banks?
ANSWER: That depends on the bank's charter. There are four federal regulators – the Federal Reserve Board; the Comptroller of the Currency; the Office of Thrift Supervision; and the Federal Deposit Insurance Corporation. The FDIC also insures deposits in its member banks. The Emergency Economic Stabilization Act of 2008 signed into law by President Bush on October 3, 2008, temporarily increases the basic FDIC insurance coverage amount per depositor from $100,000 to $250,000 until December 31, 2009. The expanded insurance limits are available to all accounts whether owned individually, jointly, in a fiduciary capacity, retirement accounts or by a business. That insurance applies to accounts in FDIC member banks that are commercial banks, thrifts and savings banks.
QUESTION: But I'm hearing and seeing so much news that keeps talking about the "banking" crisis. What gives?
ANSWER: The problem is that words matter. And when one word is used to mean several different things, it inevitably creates confusion. For example, we know what a bank is. But sometimes a business that wants to add status to its name will call itself a "bank" even though it is not an insured depository institution—such as a commercial bank, thrift or savings bank.
Bear Stearns, the investment house headquartered in New York City, was not a commercial bank. It was an investment "bank."
The word "bank" is also applied to mortgage firms. Their function, their purpose and their regulation differ from federally insured depository institutions. And in this time of market turmoil, it is worthwhile remembering that only commercial banks, thrifts and savings banks carry FDIC insurance.
QUESTION: Market turmoil makes me nervous. What's the banking system – the federally regulated banks you mentioned – doing about it?
ANSWER: They are providing stability. Having a safe and sound banking system to rely on shows the importance of the role banks play in our local communities and in our nation's economy. They are the source of stability and of growth. That is true regardless of their asset size, their charter or their business plan. And the vast majority of federally regulated, federally insured banks today hold more capital than the law requires.
QUESTION: So, how did those other institutions get in trouble?
ANSWER: Today's crisis underscores the fact that there are two ways financial institutions can fail. They can fail due to capital insolvency, or because they are liquidity insolvent. What many of those institutions are experiencing now is a lack of liquidity, not a lack of capital. Capital remains strong -- strong for investment banks as well as for commercial banks and thrifts.
The liquidity crisis that we have seen on Wall Street comes from a crisis of confidence. In the 1930s, before deposit insurance, banks failed because of a crisis of confidence that led to liquidity insolvency. That can also happen to an investment "bank" such as Bear Stearns. There is a crisis of confidence, lending lines are pulled, liquidity evaporates and insolvency is inevitable.
QUESTION: What's being done to help those other institutions, and to help the economy?
ANSWER: We all know that our financial system is being tested. But let us also remember that the system is showing its resiliency. Let me give you some examples:
- The Federal Reserve Board has acted to help restore liquidity by assuring everyone that they are responding to the problems in a measured way. The Fed's action in regard to Bear Stearns is one example. In addition, the Fed opened up its lending facility known as the discount window to Wall Street firms, and is taking steps to restore liquidity to the markets.
- In addition, the Office of Federal Housing Enterprise Oversight has reduced the capital surcharge imposed on Fannie Mae and Freddie Mac so they can buy an additional home mortgages.
- And the Federal Housing Finance Board will allow the nation's 12 Federal Home Loan Banks to provide greater liquidity in the mortgage markets.
Consumer Education Statement Stuffers
To help you educate your customers, the IBA has developed four new consumer education brochures that you can use as statement stuffers or educational pieces in your bank lobby. Click here for an order form. New topics include:
- FDIC Insurance Protects Your Deposits NEW!
- The Strength of the Iowa Banking Industry NEW!
- Iowa Banks Are Making a Difference NEW!
- ATM Safety Tips NEW!
Other consumer education stuffers offered by the IBA include:
- How to Improve Your Credit Score
- Combating Electronic Payment Fraud
- Protect Yourself Against Identity Theft
- Taking Charge of Your Credit Cards
- Protect Yourself from Abusive Mortgage Lending
- Cashier Check Fraud - What You Need to Know
- Giving the Bounce to Counterfeit Check Scams
- Keeping Financial Information Private
Additional Consumer & Banker Resources
Deposit Insurance FAQs
Federal Deposit Insurance Corporation
Press Statement by FDIC Chairman Sheila Bair on IndyMac, Health of Industry (FDIC)
Explanation of IndyMac Failure (OTS)
