While many believe that the nation's largest banks are too big to fail, the Federal Deposit Insurance Corp., or FDIC, is sending a message to American financial giants: be ready for the unthinkable.
Earlier this week, the FDIC approved a new rule that will require institutions with $50 billion or more in assets to regularly submit detailed contingency plans to the insurance corporation in the case of failure. The rule is an addition to the two names you've been hearing about everywhere: Dodd-Frank.
Essentially, these plans aim to improve bank safety and lessen the blow to the financial system in the event that one of the largest banks in the country crumbles. The FDIC hopes to accomplish three main objectives with these plans:
- Give all depositors access to their insured money within one business day of the failure.
- Maximize the net value of the bank's assets.
- Minimize the amount of loss to the bank's creditors.
Many connected to the banking industry are referring to these plans as wills, and that description is right on target. Just as people update a will to direct where the money goes after they pass, these banks will need to send the FDIC annual updates on how to distribute money and assets in a worst-case scenario.
The new rule arrives at a very appropriate time. As Bank of America struggles with a plummeting stock value, business restructuring and massive layoffs in the near future, the banking industry is getting a reality check. A total of 37 institutions will be impacted by this new rule, and some of these institutions will need to get to submit their first plans by next summer.
While 37 of the more than 7,000 FDIC-insured institutions may sound like a small number, the money in them is obviously no small change. According to the FDIC's press release, these 37 banks hold an estimated $3.6 trillion worth of insured deposits, which is more than half of all the money the FDIC insures.
Does the FDIC's new rule make you think twice about the nation's largest banks? And if so, does this new rule reassure you if your money is tied up in one of these institutions?