Wednesday, July 16, 2008

Lessons of IndyMac

Now that the big banks started to fold, the word FDIC came up. It is a federal entity insuring your bank deposits. Insurance is up to $100k PER DEPOSITOR. That is , if you had multiple accounts within the same bank, only $100k out of all of them will be returned to you ( the limit for bank IRA is $250k- I guess, some people still have those). By the way, it is said that by bailing out IndyMac depositors, FDIC used 10% of its reserves. Is it possible for FDIC to run out of money while bailing out banks that will be folding in the near future?

Now, with some brokerage houses potential to fold, I did some investigation about their insurance. They don't have FDIC, but they are insured by SIPC (Securities Investor Protection Corporation) It has a website Brokerage accounts are protected for up to $500k in case of a broker-dealer insolvency( limited to $100k for claims for cash) Also, a brokerage might have some extra insurance from private sources (say, Lloyd of London)
That, to me, means you shouldn't really hold more than $500k( hats off to those who have that much in retirement funds) at any particular broker-dealer, no matter how reputable and old that broker is.
Market forces have no regard to reputation

1 comment:

Payday Loan Online said...

Really sounds funny.

I pity people who put their hope in FDIC who are there just prevent bank runs which is of a great advantage even to a comatose bank