banking

FDIC insurance: You can bank on it

Tom PieplowSocking away your money in a bank account leaves many investors queasy -- and for good reason. Personal loss resulting from bank failures has affected too many Americans. According to Tom Pieplow, associate professor of management at Athens State University, in Athens, Ala., keeping your money safe is a matter of choosing bank accounts backed by the Federal Deposit Insurance Corp. and diversifying. He also suggests that, as a society, future generations will be better off financially if children learn about economics, the government's role in consumer investing and how to make good money decisions.

Given widespread concern about bank failures, what suggestions can you give an individual when placing his or her money in a bank?

Consumers should make their financial decisions using objective data versus simply relying upon marketing information. In terms of a bank's viability, I firmly believe the FDIC offers the best resource to protect consumers through their supervision of financial institutions. As an independent agency created by Congress, they offer consumers a great source for objective and comprehensive financial and structural information about every institution they insure.

Many have argued that faulty credit ratings and flawed rating processes were primary contributors to the global financial crisis and because of that, consumers' confidence in rating agencies has waned. Let me be clear -- the FDIC is not perfect, but their scrutiny of financial institutions is tailored to ferret out those riskier banking alternatives and allow consumers an objective view of any institution they are considering investing with.

When developing their investment strategies, consumers should also ensure they have diversity. Banks offer the most stable and secure of financial growth options, but every financial planner I've worked with advocates a mixture of insured deposits with other alternatives. No one should have all their eggs in one basket. When working with a financial planner, you can decide what level of risk you are willing to take on and from that, craft a plan that best fits your strategy. In my personal finances, I have banking deposits but I do not have all with a single institution. I have chosen to invest with several highly rated institutions.

What should the government do to help individuals who have lost money due to a bank closure?

Short term, government has a responsibility to fully meet the $250,000 threshold for deposits made with any FDIC-insured depository institutions, and history demonstrates they are performing exceptionally well. The FDIC has satisfied every obligation to consumers at fully insured value, and any lost money comes from institutions outside of the FDIC's umbrella or from deposits exceeding coverage limitations. But strategically, I believe any bank closure is a red flag and a cause for concern.

Please understand: I do not believe government holds the answer for any problem -- but taxpayers could ultimately be responsible for any payments made by the FDIC that exceeds (the) fund's ability to pay. The FDIC has taken a proactive role in supervising and auditing banks, and it is my opinion that it is judicious to expect all insured institutions to comply with reasonable standards.

These standards should constantly be assessed and when found to be no longer relevant, revised or even discarded. But when a bank fails, this may be an indication that a review of these standards is in order to ensure consumers have access to unbiased, objective data and that coverage is adequate.

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