Small Biz Owners: The FDIC Has Your Back, For Now

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NEW YORK (TheStreet) -- The Federal Deposit Insurance Corporation said it would continue to waive insurance limits on business deposits until June 2010, extending the deadline by six months.

After that, businesses and municipalities with checking account balances that exceed the FDIC's regular deposit insurance limit should take heed and monitor the health of their banks.

The Transaction Account Guarantee, or TAG, is part of the FDIC's Temporary Liquidity Program, which was established in October to improve stability in the banking system. Along with TAG, the FDIC has been guaranteeing senior debt for banks and thrifts for a fee under its Debt Guarantee Program.

The FDIC temporarily increased its regular deposit insurance limit for individuals to $250,000, a policy originally set to expire at the end of this year, along with the TAG. While the individual $250,000 limit has been extended through 2013, the FDIC is phasing out the limit waiver on transaction accounts. After June 30, the transaction accounts will be subject to the same limits as other individual deposit accounts.

While the TAG is a voluntary program, more than 7,100 banks are participating. The program provides deposit insurance coverage on an estimated $700 billion in transaction account balances that wouldn't normally be covered.

This program has alleviated the risk of a run on deposits at many troubled banks. Even with the TAG and increased individual coverage, there have been large amounts of uninsured balances at some recently-failed institutions, including Guaranty Bank, which reported $1.6 billion in uninsured deposits as of June 30 and failed on Friday, and BankUnited Financial, which failed in late May after reporting $2.4 billion in uninsured deposits as of March.

The FDIC found acquirers to purchase the deposits at these thrifts, including uninsured balances. However, there have been seven failed institutions this year for which the FDIC was unable to find buyers. Depositors with balances that exceed FDIC insurance limits have lost money in five of those failures.

When NetBank failed in October 2007, TheStreet.com heard from a business that lost $500,000 because money had been wired into its checking account right before the failure. These were operating funds that came in from customers and were owed to vendors.


Bank Failure Summary

 

There have been 81 bank and thrift failures this year, which are detailed in TheStreet.com's interactive bank failure map.

Georgia continues to lead U.S. states with 23 bank or thrift failures during 2008 and 2009, followed by Illinois with 14, California with 13, Florida with eight and Nevada with five.

Large bank holding companies that have acquired failed institutions during 2008 and 2009 include JPMorgan Chase (Stock Quote: JPM), which bought Washington Mutual, the largest-ever bank or thrift to fail in the U.S.; SunTrust Banks (Stock Quote: STI); Regions Financial (Stock Quote: RF); Fifth Third Bancorp (Stock Quote: FITB); U.S. Bancorp (Stock Quote: USB); Zions Bancorp (Stock Quote: ZION); PNC Financial Services (Stock Quote: PNC); and BB&T (Stock Quote: BBT).


Free Bank and Thrift Ratings

 

In this environment, it is a very good idea to look into the health of your bank. For depositors shopping for high-rate CDs through brokers, it is also important to consider the health of a bank or thrift, since attractive CD rates that are locked in can be lost when an institution fails. Depositors of three of the institutions that failed last Friday face this inconvenience.

TheStreet.com Ratings issues independent and very conservative financial strength ratings on each of the nation's 8,500 banks and savings and loans. They are available at no charge on the Banks & Thrifts Screener.

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