WAMU Goes Under, Is your Bank Safe?


Washington Mutual just became the largest U.S. bank to go under, ever.

But, it's still business as usual for bank and its customers. The Seattle-based WaMu (Stock Quote: WM) was seized by the U.S. government, and a deal was struck with JP Morgan Chase (Stock Quote: JPM) to buy deposits, assets and more. Part of the transaction requires a payment to the FDIC of approximately $2 billion.

The banks failure, and 12 others, may concern most individuals that hold a banking or checking account. But, here's a little something to ease your mind: you're probably insured. The Federal Deposit Insurance Corporation (FDIC), an independent government agency, protects bank depositors from the loss of and regulates approximately 5,000 banks."In the 75 years of the FDIC's existence, no depositor has lost a penny of FDIC-insured deposits," says Andrew Gray, the FDIC director of Public Affairs.

Still as banks such as WAMU and IndyMac sputter, individuals want answers, so MainStreet asked Gray about the bank insurer and how they work.

1) For consumers worried about their money, how much is insured?
The basic amount of insurance coverage provided to depositors of an FDIC-insured bank is $100,000, including principal and any accrued interest up through the date of the institution's failure. This $100,000 limit is applied separately to funds that a depositor has in different ownership rights and capacities. A depositor who holds deposits in different ownership rights and capacities can have deposits well over $100,000 at the same bank and be fully insured by the FDIC. The FDIC encourages consumers to learn more about deposit insurance limits by visiting www.fdic.gov, calling toll-free 1-877-ASK-FDIC or asking their FDIC-insured bank.

2) Is the figure the same if the accounts they hold at a bank are savings, checking, IRAs or even joint accounts? If not, how do they differ?
Deposit insurance coverage is not based on the type of deposit such as checking or savings accounts. Insurance coverage is based on the type of ownership category that the funds are titled under. All types of deposits—certificates of deposit (CDs), checking, savings, money market deposit accounts, and NOW accounts—held in the same name(s) in the same ownership category are added together to calculate deposit insurance. The most common account ownership categories are: Single accounts, joint accounts, revocable trust accounts and certain retirement accounts.

3) If a consumer's bank does fail, what steps would they take to be compensated for money held by the bank?

Generally, a bank is closed when it is unable to meet its obligations to depositors and others. One of the FDIC's responsibilities as receiver is to make good on the promise of deposit insurance by covering the balance of each depositor's account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank's closing.

Most depositors do not need to do anything to receive their insured funds. The FDIC either transfers the insured depositor's account to another FDIC-insured bank or gives the insured depositor a check equal to their account balance.

4) Are there warning signs consumers should consider when placing their money into a bank?
Most consumers do not need to worry about their bank's financial condition if their funds are deposited in an FDIC-insured institution and are within the insurance limits. Consumers should check with the FDIC to make sure the bank they intend to deposit money in is insured. They can go to the Institution Directory feature of the FDIC's Web site at or call 1-877-ASK-FDIC. All FDIC-insured institutions must display an official sign at each teller window or teller station.

5) What banks are not insured by the FDIC?
Deposits in all federal credit unions and many state-chartered credit unions are insured by the National Credit Union Administration, an independent federal agency that charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, operates the National Credit Union Share Insurance Fund. For more information, consumers can go to www.ncua.gov.

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