Study Questions

Deposit Insurance:

The bank failures of the the depression created a significant confidence problem for all banks. For the first time, consumers started keeping whatever cash they had at home - or buried in the back yard. This hoarding of cash created two problems - one the reduction of cash in the system and the second was a reduction in the supply of money for lending activity. In order to over come this very real problem, Congress created the Federal Deposit Insurance Corporation (FDIC) whose responsibilities included providing depositors insurance in case their bank closed.

Deposit Insurance has gone through a number of changes, both in dollar amount from the original $10,000 to the current $100,000; to the creation of the Federal Savings and Loan Insurance Corporation (FSLIC); to the creation of the National Credit Union Administration (NCUA), for Credit Unions. In 1987, the FSLIC was dissolved and the insurance of thrifts was transferred to the FDIC. At that same time two separate insurance funds were created, both under the FDIC, Savings Association Insurance Fund - or SAIF - and Bank Insurance Fund - or BIF. The NCUA continues to administer the credit union deposit insurance.

FDIC and NCUA Insurance of Accounts:

This is more complicated - and the text has more space to cover the details. Joint account coverage, is based on the individual joint tenants own share of the funds on deposit. The amount of insurance for any individual is also limited to $100,000. The simplest example of this to assume that individuals, "A", "B" and "C" create joint accounts at the same bank.

Account '1' has "A" and "B"; Account '2' has "B" and "C"; and Account '3' has "A"and "B" and "C". Each account has $100,000. The first step is to determine each individuals ownership interest in each account. Individual "A" has a 50% interest in '1' ($50,000), and a a 33% interest in '3' ($33,000) - for a total of $83,000 and is therefor under the limit. Individual "B" has a 50% interest in '1' ($50,000), a 50% interest in '2' ($50,000), and a 33% interest in '3' ($33,000) - for a total of $133,000 - which would be limited to $100,000 leaving $33,000 UNINSURED. Individual has a 50% interest in '2' ($50,000) and a 33% interest in '3' ($33,000) - for a total of $83,000 and is there for under the limit.

In this example, only the interests of account owner "B" would be reduced by the insurance limits.

Accounts in this category are also limited to $100,000,but it is not per account - but per "INSURABLE RELATIONSHIP". In this category, an "Insurable Relationship" is relationship between the Trustee(s) on the account and the Beneficiary(ies) on the account. The relationships are also limited to: spouse, children and grandchildren. A simple example is: Father trustee for Son - the insurance would be $100,000. To show a more complicated relationship, imagine an account:

Mother and Father Trustee for Son and Daughter. To determine the coverage here, all the relationships are OK, i.e. spouse, children or grandchildren. Then each individual relationship must be determined. They are:

Mother Trustee for Son

Mother Trustee for Daughter

Father Trustee for Son

Father Trustee for Daughter

This creates FOUR insurable relationships - and the insurance coverage would be $400,000 in one account. By combining all the relationships listed above - and with a large family, the amount of insurance coverage in this one category can be very large indeed.

ASSIGNMENT:

There is NO specific assignment for this session.