How the FDIC Protects Bank Depositors’ Cash
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Here's your money briefing for Tuesday, March 14th. I'm J.R. Whelan for The Wall Street Journal. In the past few days after the collapse of Silicon Valley Bank and Signature Bank, we've heard a lot about the FDIC. The government corporation often operates in the background of the nation's financial system, but it's taken center stage as people and companies with money in those banks worried it was lost.
So when a bank fails, the government will take it over and figures out exactly how much assets that bank has and with what priority people need to be repaid.
So how does that process work? And should depositors expect to get all their assets back? Our personal finance reporter Amani Moise joins us with some answers after the break.
People with money tied up in Silicon Valley Bank and Signature Bank that failed over the weekend breathed a sigh of relief when the government announced that their cash holdings would be protected by the FDIC. So how does the FDIC work? And how would it protect you if you had cash at a bank that failed? Wall Street Journal personal finance reporter Amani Moise is here to explain. Amani, thank you for being with us. Happy to be here. So Amani, we've heard a lot about the FDIC in the past few days, and a lot of people probably see signage for it when they go to their bank. What is the FDIC and what's its role?
So FDIC stands for Federal Deposit Insurance Corporation, which was created in the 1930s after the Great Depression to restore public faith in the banking system after a lot of Americans lost their life savings in a series of bank failures. So essentially, it's the government guaranteeing that you're going to get your money back if a bank fails.
All right. And how much of people's deposits are insured?
So the standard insurance that comes with any bank is $250,000 per depositor per bank. And if you're a married couple with a joint account, then each individual owner gets another $250,000.
What triggered the FDIC to become central to Silicon Valley Bank and Signature Bank coverage?
So that joint account is covered for up to $500,000. All right.
You know, that's a good cushion for a lot of people who probably have a lot less than a quarter million dollars in the bank. But what if your bank goes under, like we saw with Silicon Valley Bank and a few others? What does that look like for depositors, even if they have that insurance policy in place?
So when a bank fails, and really what that means is that a bank does not have enough money on hand to repay all of its obligations or give money back to depositors, what that means is that the government will take it over. And once the government determines that a bank has failed and takes it over, you can't touch your deposits until the government kind of finishes taking stock and figures out exactly how much assets that bank has and with what priority people need to be repaid. So once your bank fails, there is going to be a waiting period where you're trying to understand what the government is going to do. And once that's done, then you'll be able to withdraw funds up to the insured limit. It's also important to understand what isn't covered by the FDIC.
What that agency is really created for is to protect cash deposits. So if you have investments like stocks, bonds, those aren't typically covered by FDIC insurance, but If you have your money in a brokerage, that's very likely covered by another kind of insurance called SPIC, which stands for the Securities Investor Protection Corporation. And though I mentioned bonds aren't covered by FDIC and U.S.
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