Your money is still in your account, so it is accessible with your debit card. You can walk in or log on or call and transact business as usual. The employees of the former bank are now employees of the new bank. A temporary sign with the name of the new bank will be put up over the old sign until a permanent one can be installed.

The thing that concerns me is not what happens in the event of an insolvency – it is any bank’s obligation to give me my cash even if the bank is not declared insolvent. Earlier this year Citibank sent its deposit customers a notice saying they can wait 7 days from the day you ask before giving you any money in your checking account. Many have questioned the legality of this policy, which turns demand deposits into time deposits – a checking account in effect becomes a CD. If they can do this, what is to stop them from deciding the delay will be 14 days, or 21 days, or 6 months?

And in the event of a threatened run on a money market mutual fund, new SEC rules permit these funds to suspend redemption. This means if the economy slides into a panic, access to your money could be blocked indefinitely.

The mattress is looking better and better.

As a result, thousands of victims are being robbed of their SIPC protection.

The Madoff victims, while continuing to fight for their due justice are also concerned with ensuring that all American investors are aware of the fact that promise of SIPC insurance is indeed a farce and a facade.

Historically, SIPC has prospered more than the victims in the cases they have handled.

Ronnie Sue Ambrosino
Coordinator
Madoff Victims Coalition

Regulators will chose which institutions live and which ones die. Looming commercial real estate defaults will be used to justify the shuttering of community and regional banks nationwide. The FDIC will supervise their orderly dissolution, making all depositors whole. I believe this will be hailed by regulators, politicians, and the financial press as a good thing – fewer institutions to police. I wonder which institutions will be permitted to survive? Hmmm…

I think JP Morgan Chase will be one of the chosen survivors. In my community they are building new freestanding branches at just about every major intersection. The fix is in.

Methinks we are in store for a handful of mega-banks. With solvency a non-issue, the fear of bank failures is eliminated. But with no reserve requirement, banks will not need to attract deposits by paying interest. Instead of paying depositors to park money in the bank, banks will charge fees to handle cash. Then the case will be made to completely eliminate cash from the banking system.

Ain’t banking wonderful!

The federal government wouldn’t allow the FDIC to fail, because it would cause widespread financial panic, not only here but across the globe. So, I guess if you’re going to be worried about anything, it should be the stability of the U.S. government as a whole, and since your bank money is denominated in dollars, I don’t see how the U.S. would be in a situation where it couldn’t just create more money to pay you in a worst-case scenario.

But even if you’re worried about that extreme solution, I’m not sure diversifying into foreign banks makes sense. Is there a scenario where the U.S. financial system could collapse and another banking system could survive? Not sure, maybe if it was in a third-world economy disconnected from the U.S. economy. But even then, the chances of a third world banking system collapsing is very real and happens frequently in good times.

All that’s to say that diversifying into foreign banks for “safety” doesn’t make much sense to me.

If you don’t have cash in your wallet, losing the ability to get your money out of the bank for just a couple days could be devastating. I rely almost entirely on my debit card. What would I have to do if my bank collapses? I don’t own a credit card.