How Some Americans Made Money on FinReg


The Financial Reform Act, more formally known as the Dodd-Frank Wall Street Reform Bill and Consumer Protection Act (H.R. 4173), has its share of supporters and critics. But not everyone’s crying in their beer over the legislation; 9,000 or so Americans made out like bandits on a unique provision in the act.

When the economic crisis reached full force in 2008, the federal government stepped in and hiked the Federal Deposit Insurance Corp. (FDIC) bank deposit insurance limit from $100,000 to $250,000. At the time, the move was expected to be a temporary one — it would offer increased protection for bank deposits until the economic hurricane blew over. The official date for the new $250,000 level to expire was Jan. 1, 2014.

In brief, the FDIC insurance program works like this. Every dollar you deposit up to $250,000 in an FDIC-insured bank is insured if your bank fails. It’s an important piece of protection, considering the number of U.S. banks that have dissolved in the last few years. A recap from TheStreet:

Year                Bank Failures

2008                25

2009                140

2010                108 (through July 30)

That’s 273 U.S. bank failures in what economists describe as the Great Recession — reason enough to be concerned about your bank deposits.

Fast-forward to 2010, when Congress heatedly debated terms of the Dodd-Frank bill. As finishing touches were put on the bill, a provision was included to make permanent the FDIC insurance hike to $250,000. And by the time Congress passed the bill on July 15, the hike — along with the rest of the bill — was voted into law.

But here’s where things get interesting. A little-known provision in the financial reform bill retroactively hiked the FDIC limit back to January 1, 2008. That was a major coup for 9,000 bank consumers holding more than $100,000 in deposits in the failed banks that collapsed between that date and October 1, 2008 — the date the original FDIC insurance hike was put into play.

Instead of losing the money they had in deposit at failed banks — up to $150,000 in many cases — those bank depositors received a last-minute reprieve and are getting that money back.

Call it the law of unintended consequences or just blind luck. Whatever you call it, about 9,000 U.S. bank depositors had special reason to break open the bubbly. With up to $150,000 back in their wallets, they could certainly afford it.

Consumers looking for more information on FDIC insurance, check out the FDIC's website.

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