A Broke FDIC Expands Checking Account Insurance From $250,000 To Infinity

Tyler Durden's picture

A few days ago, the FDIC, broke as ever, with a Deposit Insurance Fund that was well south of zero at last check, announced, with delightful irony, that it was expanding its insurance on non-interest bearing checking accounts from the current $250,000 to, well, infinity. As in there is no upper limit on how much the FDIC would insure - the fact that it has no money at the FDIC to begin with being completely irrelevant. That's right, the broke FDIC basically said that it would guarantee up to $480 billion currently sitting in US checking accounts between December 31, 2010 and December 31, 2012. Yet is this nothing less than another Volcker-inspired plan to get capital out of multi-trillion money market industry and into consumer hands via easily accessible transaction accounts, and to encourage spending on useless trinkets like iPads? This could very well be the case.

As many will recall, earlier this year the Group of 30, headed by Volcker, came out with a recommendation to allow money market to suspend redemption without prior notice. We, along with many others, speculated that this was merely an attempt to spook MM investors into stocks. Well, it succeeded... half way. Investors did indeed take out money from mutual funds, whose current after-fee 7-day simple yield on prime funds is just 7 bps. However, they then used that money to buy not stocks, but fixed income, instead focusing on such securities as Investment Grade bonds and Treasurys. As a result the much expected ramp in stocks never really occured, and it was up to the Fed and the HFT mafia to keep ramping stocks as ever more outflows exited dometic equity mutual funds.

This latest action by the FDIC, as Barclays' Joseph Abate speculates, is nothing less than a comparable attempt to get Americans to take out theyr cash from money market funds and, now that the whole equity investment avenue is closed, to put it into checking account instead, hoping that once the money is one step closer to the end consumer (as it will reside in non-interest bearing transaction accounts), and easier to withdraw, the psychological element will be one of spurring consumption. Yet will this latest scheme to impact mass consumer psychology work? If past experience is any indication, the desired outcome will once again fall well short of the actual.

More details from Joe Abate on this latest scheme by the FDIC:

The FDIC recently released details about the Dodd-Frank financial reform bill’s requirement to provide temporary unlimited deposit insurance coverage. Unlimited deposit insurance would apply only to non-interest-bearing transaction (checking) accounts. It would be provided to all depositary institutions – there would be no opt-in – and importantly, there will be no explicit charge to the banks for the extra insurance. That is, unlike the similar Transaction Account Guarantee (TAG) program, there would be no special assessment or insurance premium for the coverage assessed on quarterend balances over the current $250,000/account limit. Instead, the FDIC will price its regular risk-based quarterly assessments to account for the additional insurance. But assuming the FDIC proposal goes through without major changes, the entire $480bn currently sitting in US checking accounts would be fully covered for the period between December 31, 2010, and December 31, 2012.

No discussion on just how the FDIC will insure not just all this capital, but all continue with its $100,000 insurance of traditional interest checking accounts, considering that the FDIC is broke. After all, if it gets to insurance getting actually paid out, it will be game over.

But of course, it is all about expectations. Which is why Abate believes this is merely a ploy to get money market holders to transfer their money from MMs to checking accounts, after conducting an appropriate cost-benefit analysis.

Unlimited transaction account coverage – even if temporary – poses a challenge for money market funds. At current levels, the average after-fee 7-day simple yield on prime institutional money funds is just 7bp. Thus, besides the insurance coverage, there is little difference between money fund accounts and checking account balances. Traditionally, this has not been the case, as money funds typically yielded more than bank deposits in order to compensate depositors for the absence of (limited) deposit insurance. On the surface, then, the provision of unlimited deposit insurance on a close substitute that also yields (close to) nothing could encourage institutional investors (those most likely to exceed the current $250,000 deposit insurance limit) to shift their balances back into banks.

Despite these super-low rates, money fund balances have held fairly steady since late spring. We suspect that part of the stability may reflect the fact that among institutional investors, the current amount of deposit insurance coverage ($250,000) is not sufficiently high to shift their cash allocation to banks. With only that level of coverage, institutions may feel more secure holding their multi-million dollar cash deposits at money funds, where the fund manager’s commitment to a stable net asset value acts as a weak form of insurance.

It is possible that unlimited transaction account insurance might tip the balance sharply in favor of checking account balances over money funds. If institutional investors prefer the FDIC’s explicit guarantee to the money fund sponsor’s promise to maintain a stable NAV, then money fund redemptions could increase. The pace of redemptions – if any – would ultimately depend on what value institutional investors place on having explicit principal protection. If this isn’t worth the 7bp they earn after fees on money fund deposits, they may stay put. But according to a recent Federal Reserve working paper, institutional money fund investors tend to be fairly flight prone – pulling their deposits quickly at the first sign of financial distress. (“The Cross Section of Money Market Fund Risks and Financial Crises,” P. McCabe, Federal Reserve Board working paper, September 2010.) This suggests a fairly strong sensitivity to principal protection over yield among the $1.2trn in institutional money in stable net asset value funds. As a result, some portion of these balances could leave for bank checking accounts. Of course, the value of insurance becomes apparent only in a crisis. As a result, with financial markets stabilizing, it’s possible that institutional money has become less flight prone. If true, the value of the FDIC’s insurance coverage might not be worth much for institutional investors. Until the insurance coverage takes hold at year-end, though, it’s not clear how much of the $1.2trn in institutional money fund balances could depart for banks.

We continue to be surprised by the eagerness of the administration to forcefully evacuate prime money market funds. The aggressive insistence to make life for MM investors a living hell, can only mean that should the true NAV of the majority of money markets be disclosed it would make the "breaking the buck" incident which nearly destroyed the system more than anything else in the days after the Lehman collapse a daily event. We hope we are wrong about this.

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SpeakerFTD's picture

Isn't there some law limiting the number of surreally stupid things the government can do in one day?

MarketTruth's picture

Yes, it is called the 2nd Amendment... provided the sheeple wake up from their slumber.

"There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt." -- John Adams 1826


"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen." -- Samuel Adams, speech at the Philadelphia State House, August 1, 1776.


"And I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property -- until their children wake-up homeless on the continent their fathers conquered... The democracy will cease to exist when you take away from those who are willing to work and give to those who would not." -- Thomas Jefferson wrote on May 28, 1816


"When the people fear their government, there is tyranny; when the government fears the people, there is liberty." -- Thomas Jefferson

Yes We Can. But Lets Not.'s picture

"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace. We ask not your counsels or arms. Crouch down and lick the hands which feed you. May your chains set lightly upon you, and may posterity forget that ye were our countrymen." -- Samuel Adams, speech at the Philadelphia State House, August 1, 1776.

Take that, progressive dipshits.

snowball777's picture

Each generation should be made to bear the burden of its own wars, instead of carrying them on, at the expense of other generations. 
James Madison 

Take that, neocon dipshits.

Quantum Nucleonics's picture

In the spirit of your comment, tell you what, we'll (the 50% of America right of center) pay for Iraq and Afghanistan, while you (the 50% of America left of center) take care of ObamaCare, Social Security, Medicare, Medicad, Fannie, Freddie, TARP, Food Stamps, and other social welfare.

Glaucus's picture

Which is why those of us who don't cling to the left-right continuum of the state, but reside at the "still point" above it, owe nothing.

Yours in freedom,


* Not Libertarian Party, just libertarian


snowball777's picture

Well said.

I find that politics becomes much more interesting if you look at it in terms of several axes instead of a single (easily polarizable) continuum.

Glaucus's picture

I think of it in terms of a Hegelian dialectic -- i.e., thesis (left), antithesis (right), synthesis (libertarian) -- such that the state "whithers away" amid the (Internet assisted) increase in individual empowerment.  After all, in the words of someone who no doubt knew whereof he spoke:

"So long as the state exists there is no freedom. When there is freedom, there will be no state." -- Vladimir Lenin

snowball777's picture

I don't think it needs to be non-existent as much as fundamentally limited...ala Kant:



i-dog's picture

How do you plan to limit the growth of the parasite? The Founding Fathers tried and failed ... so, what is your cunning plan?

There is no service performed by the state that can't be provided more efficiently and effectively by private service providers.

i.knoknot's picture

it's a fair question.

my gut response is that the founding fathers didn't fail so much as did the folks that 'progressively' took the baton from them over the years, and who we have allowed to pervert their clear intentions.

sadly, based on their historic 'above-the-law' behavior and power abuses, the big-business establishment deserves *just* as much suspicion as the socialist' counter-response deserves.

i wish more folks realized that it doesn't have to be one or the other.  cultural momentum keeps insisting that it cannot be a new grey, rather than the well-known black or white. we could reign in business *and* insure personal liberties/accountability if we really understood that that is what we wanted to do. but that's too many syllables for most...

the simple answer would be to enforce the original laws as *intended* - not so much as they were written. easily said, but who establishes the intent... currently there are too many loop-holes and shrewd folks who have mastered the management of that ambiguity.

the founders' ideas were sound. what we have now is nothing like what they intended. it's the *current* model of execution that must be *disconnected* from their original intentions before we can try it again - with "new and improved" insurance against their abuse... (riiiiiight...)

never-mind. i don't have a plan either... dam.

snowball777's picture

So we can dissolve the army and navy, then? Because Xe rocks so hard? Please.

The FF didn't fail, our constitutional republic is more than capable of doing what is necessary to right this ship, if only the electorate would pull their heads out of their collective asses.

And what of services that the private sector is simply unwilling to provide? Or unwilling to provide at competitive prices (because they say...have a monopoly on healthcare in a state or something)?

Markets are awesome for some things, but only when they work (hear me CFTC and SEC?), and only when they are distributing a resource that can be treated as zero sum. Human life and the environment can't be effectively priced into that system, but it is those externalities that tend to breed revolution.


i-dog's picture

You need to expand your mind beyond the mediaeval imperialist warlord paradigm! Most modern humans are peaceloving souls who have no desire to go hunting for neighbours (right-wing warmongers and left-wing looters excepted).

In any event, a warmongering state confronting a libertarian enclave would face an asymetric nightmare ... every civilian armed and no "state house" from which to take over the reigns of taxation. There would be nothing in it for them. For examples, see: Switzerland (no standing army, navy or airforce ... yet even Hitler and Mussolini wouldn't attack because every civilian MUST be armed); Afghanistan (no standing army, navy or airforce ... yet they whipped Alexander the Great, the British, the Russsians and the USA); USA (the revolutionaries had no standing army, navy or airforce ... yet they whipped the British).

And who would fund a massive "Xe-like" force? I wouldn't and neither would anyone else who was presented with an optional bill for voluntarily maintaining a standing army and all their equipment for no apparent reason. If your neighbouring enclaves also had no "state house" managing the taxation of the slaves, there would be no point in invading them either. All wars are about taking over ownership (ie. taxation) of the resident slaves. No slaves = no point. Throw off your shackles!!!

The US electorate have "had their heads up their collective asses" since the very first congress in 1789 ... precisely because they just vote then go back to sleep while the corrupt pollies do what the corrupting oligarchs tell them to do. No pollies = no corrupt laws = no monopolies = no oligarchs. Democracy is both a logical and demonstrated abject practical failure. Mob rule.

Any service that a libertarian society desires will be provided by some enterprising entrepreneur ... or philanthropist. If someone is in need of charity, someone else will be very happy to provide charity (including medical attention). It has always been so, and government is the very least effective means of delivering ANY of these services.

You need to wake up to the REALITY that the American Republican Experiment has been broken ever since it was created with the best of intentions. Whether it was George Washington leading the army against the Pennsylvanian farmers to collect higher taxes than even the British had levied, or whether it was the bankers assassinating Abraham Lincoln because he wanted control of the currency back with the government (and attempting to assassinate Andrew Jackson for exactly the same reason; Wilson only lived because he caved in 1913). The more things change, the more they remain the same.

Have a look at the state's share of GDP over the last two centuries (ie. 10 generations and 100 congressional elections), during which time it has relentlessly increased year by year, congress by congress, until the current ridiculous breaking point. Even reducing government by 99% to get it back to where it all started ... assuming any lefty or pollie or bureaucrat would go along with it ... would just see the whole thing explode again in no time at all.

Statism is dead! Let's just give it a peaceful burial before the lawmakers, lawyers and law-funding oligarchs stink the place out again.

snowball777's picture

I can see your clinics sprouting up all over Somalia now. Your utopian idealism is well-intentioned, but extremely short-sighted and naive...such a waving of hands cannot mask the details lurking with sharp teeth behind your generalization.

To transfer faith from government to corporations does nothing but change the color of your cage and place them explicitly beyond your accountability. Small government -> powerless courts -> unenforceable contracts.

Libertarianism is fun right up until the first time you get food poisoning.


i-dog's picture

Your narrow vision is astounding. And your lack of understanding of thousands of years of successful individual action and accountability is alarming.

Corporations ARE a statist construct ... to limit liability in return for state sanction. Without the state, there is no big bully to hide behind ... simply contract, natural law, reputation, and restitution in default. It works in international trade, it works for the oligarchs in their drugs and arms dealings, and it works for the little guy on eBay. We don't need a corrupt legal system to sort out these simple issues.

Socialism is fun right up until you run out of other people's money to steal/spend.

snowball777's picture

Sadly, no, it fails in each and every one of those contexts.

Oligarchs are exactly that...anti-competitive entities with brutal enforcement of random rules (what a country!). It works in international trade for whom? Certainly not small farmers in developing countries. Anyone can game a ratings system like E-bay (but in general I like the market-making tech).

And I think none of these examples can be extracted from the context of status quo economies (no pineapples, AKs, heroin, or Lindsay Lohan panties to exchange in your world....okay maybe the heroin).

Perhaps you walk as you talk and you're ready for the implications involved in what you're proposing (much smaller economy, much slower tech advancement, etc)?

The myth of the individual is very attractive, even an ideal to which one should strive, but the interdependence of mankind is inescapable (but do try!).


i.knoknot's picture

i gotta go with i-dog on this one, although agreement with him does *not* discount your points!

we all agree (?) that humans and their institutions motivate towards comfort and away from discomfort.

this said, today's governments (most all of them) auditably have very little connection to their charges (and no, voting clearly does not correlate with representation, much as the MSM would want you to believe it does). because of this disconnect, and because the government does not currently fear its populace, they *naturally* move toward power and have no reason to shy from supressing perceived dissent/threats (regardless their merit - a threat is a threat).

libertarianism is about safeguarding and tempering the unbridled growth of any institution that would limit natural freedoms, rather than some mis-perceived parallel to anarchy and/or complete chaos.

i simply don't believe the safeguards are in place any longer (no accident), and we are visibly watching the beast grow out-of-bounds at an alarming rate. so fast that we may not be able to control its inevitable implosion. rather than instituting a controlled soft redirection, we get to watch it fail like the Hindenburg.

Glaucus's picture

Quite true, if denied by the vast majority of people both here and elsewhere, having been brainwashed into believing that the state is either inherently good or "a necessary evil."  And most, of course, have been taught to believe the former.

But the fact is that, by its nature, the state cannot be limited -- http://mises.org/daily/2874.  Rather, because it is everywhere and always a cancer on society, it will grow beyond whatever limits society imposes on it, the grotesque failure of our vaunted attempt at federalism being no exception.

No, the state must be eradicated, period.  And fortunately, there are forces at work in the world today (this site being a perfect case in point) -- http://www.lewrockwell.com/orig/garris3.html -- that signal an end to the state.  And much sooner than most would think.

snowball777's picture

First, the right wing owns TARP. Paulson? Bush? Okay,...now that we're in reality again.

I'd love to cut them all, but have yet to see a genuine discussion of how to maintain our current consumer-credit-oriented, outsourced service-sector-only economy without the edifices of the social safety net you've enumerated.

I'd love to see most of the people underwater now rent for years like I have and waiting to see another 20% drop in RE prices with a smile on my face knowing I'm saving thousands per month being patient, but even if you eliminated the GSEs, securitization will still allow the same shenanigans. Best of luck teasing apart the 'innovation' from the 'graft' in your Happy Valley, Ayn.

And you'll also need to foot the bill for all the non-DOD military spending on NASA, keeping the nukes safe, and the VA (you love the troops, right?); don't skip out on our finest soldiers after they've done their duty because it's better for your Pug insurance company golf buddies or anything.

Are you willing to cut them all and let go of polarization distractions like gays? The TeaPotDomeExpress isn't.

Too bad, but sometimes 'different ditch' isn't compelling enough.


snowball777's picture

There's the vote on what's to be done...and then there's the brunt of the responsibility for the crisis to which it was a response in the first place...or did all those 'nay' votes not have control of congress and the presidency for years during Dubya's Reign of Error?

i.knoknot's picture

you claim (above) to seeing beyond the duopoly of our current system, yet repeatedly throw barbs at particular figures as if it's a meaningful endeavor.

drop the names, and you start to see that they've *all* been duping us for decades. in aconcerted and coordinated effort. a bad dubya doesn't make a good maobama. and bad maobama doesn't make a good dubya.

if we learn anything from their crap, it's that it's time to look at tomorrow's vote, and stop being distracted by today's MSM rubbish. vote. send a check. send a letter. educate your friends.

else we're lost.

snowball777's picture

I could throw barbs at Rubin and Clinton too, if that would help, but I take your point about constructive, rather than reflexive criticism.

I'm less attached to the 'who' did 'what' than the 'how' we're going to need to fix it (e.g. replacing Glass-Steagall, electoral reform, and other progressive platform planks).

nmewn's picture

"(e.g. replacing Glass-Steagall, electoral reform, and other progressive platform planks)."

Agree on Glass-Steagall (thanks Bob Rubin you friggin nut case)...but what does electoral reform have to do with finance? It's not enough that the bankrupt blue states have the population (the popular vote) to vote to rape & pillage the rest of the nation?

I think a "progressive" platform has done enough damage already. My previous vote tally link had no impression on you apparently.

Here's some Bob Rubin from back in the day. Was Bob a "progressive"?


Now I'm off to work...someone has to pay taxes in order to give "progressives" something to micro-manage.


snowball777's picture

I mean progressive as in Feingold (anyone associated with Citi is DQ'd out of the gate).

By electoral reform I mean campaign finance law that would bust up the duopoly as it stands so that we can get some fresh ideas before the people and give them a reason to vote FOR something again (as opposed to against whatever status quo pole to which they are diametrically opposed).

Does a two-front war of choice count as "micro-management"?

My 18% effective is in that pot too, but I'd be glad to entertain the idea of shifting that tax burden to Warren or Bank of Lynching America and off of our salaries.


nmewn's picture

I have yet to find a "progressive" who is not a statist. Perhaps you can point me to one.

And Feingold is an unacceptable answer unless you can prove he actually read the bill regarding healthcare that includes over 200 new departments, 16,000 IRS new agents, a passage that says a 1099 must be issued when doing commerce with anyone in amounts over $600 etc. ad nauseum...because if he did vote for this after reading it he is worse than a "progressive".

"My 18% effective is in that pot too"

Does this include the state tax...use or "sales" tax that Wisconsin levies? Are you including federal FICA etc.?

I'm guessing not.

And if you are investing in gold...why? Don't you feel guilt about keeping some of what you have earned safe instead of consuming taxable goods for the well being of the country? ;-)

SoCalBusted's picture

Wars can be terminated.  All of the programs and entitlements that you have listed have close to zero probability of being terminated.

snowball777's picture

Not without spiking unemployment and leaving the empire's dependencies vulnerable.

Common_Cents22's picture

We should be allowed to at least earmark the taxes we pay to various programs of taxpayer choice.

StychoKiller's picture

In which case, we can dispense with Congress!

RichardP's picture

TARP was Bush's baby.

The 2nd paragraph of this link updates what has been spent and what has been paid back:


Turd Ferguson's picture

"Paid back"...now that's a good one. I needed a laugh!

TheGoodDoctor's picture

More like paid back after fractional reserve banking.

homersimpson's picture

Does it matter? Giving W for TARP is like congratulating Barack for the rise in the stock market. Either way the US taxpayer was screwed - and both Presidents used TARP to their "advantage"..

andyupnorth's picture

Obama and McCain both flew into Washington to tell Bush that they too approve of TARP...

They're all puppets to their masters...

ISEEIT's picture

The best you can do in the midst of this meltdown is pretend it isn't real? Fucking moron.

aerojet's picture

The thing is, that was an easy thing for Sam Adams to say, he was a wealthy guy with connections.  It was quite another thing for those who had farms or people who depended on them being around to join a shaky rebellion.  So it's great theater, but damn, I'm not  sure I would have gone along with it.  History shows us that a lot of what the American Revolution was really about was a lot of really rich guys who wanted to run the show instead of the crown.  I'm not sure if colonialism was that bad for the average Joe Sixpack of the day or not.  Just look at the Whiskey Rebellion and you have your answer.

i.knoknot's picture

the joe six-packs of the day were the same as today: relegated to taxes by the crown, or taxes by these new guys (hope/change, etc.). at least they were able to interface with the local founding government, and more important, those founding fathers generally delivered on their promises (real property ownership, local state rule, bill-of-rights stuff, etc.) for a few hundred years.

while many of the farmers really had no choice about fighting the battles and worse, the war debts they had to repay in taxes to the new government, it could be argued that the ROI was ultimately in the positive for most (the ones that lived). none of this was nearly as romantic as the 3rd-grade history lessons would have us believe.

the quote is still universally appropriate to a better human condition.

Milton Waddams's picture

Another fine example demonstrating how futurists can be problematic, especially those warning of something.

Where the common man interprets the statement as a warning -- something to watch out for and protect against -- the so-called elite interpret it as advice.

"Wow I can conquer and enslave an entire nation simply by indebting it?! Sounds easy enough, let's start the conditioning process: create the image of a lifestyle that the average person covets so greatly that they, through the accumulation of debt, are willing to enslave themselves to achieve the illusion of living it."

FWIW, I've always thought that conspiracy theorists are TPTB's best friend.

"Wait one minute, this nutbag thinks we can manage the thoughts of individuals using top secret science. LET'S GET ON IT PEOPLE!!! Oh, and if this whacko doesn't know how to do it; marginalize the theory while we work on developing and implementing it."

Instant Karma's picture

Isn't there some law limiting the number of surreally stupid things the government can do in one day?

No but there will be a law not limiting this.

Government: Hell bent on committing economic suicide.

insidious's picture

No - but there should be.

Thunder Dome's picture








LowProfile's picture

You just read my mind.



RockyRacoon's picture

Speaking of shaky deposits, does anyone know of a way to get money out of a State plan?

Here is one that a friend is in and without a catastrophic event he is stuck.  It is not guaranteed by FDIC as far as I can see.  He will not retire any time soon and has been told he's locked in.   Weird to me but then I've never worked for any governmental entity.

Details on plan here:

Introduction - 'Retirement Plan Online'
midtowng's picture

What's next? Infinity plus one? Negative interest rates?

midtowng's picture

Could this expansion of FDIC liability have something to do with this:


The U.S. may lose about a third of its banks as the weakening economy weeds out the least healthy institutions, said John Kanas, chief executive officer of BankUnited.

frankTHE COIN's picture

Looks like they are jumping ahead of the Usain Bolt of all bank runs. Those numbers rival the busted banks totals of the Depression.

Augustus's picture

Insurance rates and liability are based upon total deposits, not number of banks.

What is interesting is that the FDIC can change the insurance rules without consulting the institutions who ultimately have to foot the bills.  I believe that the Money Market funds have been paying some insurance premium since one of the bailout bills.  I cannot keep up with the acronyms but it may have been the first evoloution of TARP.

andybev01's picture

-infinity to infinity.


Plus a free toaster.