The current economic conditions can
be scary, but several changes have
been made in the banking arena to
provide a safety net to business owners
and consumers worried about their
finances. The Emergency Economic
Stabilization Act, passed in October, temporarily increased the basic amount of
Federal Deposit Insurance Corporation
insurance for checking, savings, CDs,
negotiable order of withdrawal accounts
and self-directed retirement accounts,
while an additional increase for noninterest bearing transactions was made two
weeks later.
“A lot of people can be hurt in times
like this when they make irrational decisions,” says Jim Paul, senior vice president of retail administration at Fifth
Third Bank. “And understandably so
when it’s a dynamic market like it is, people do react. Get all the facts and information before you make any decisions
around your finances.”
Smart Business spoke with Paul about
how to sift through these changes, how
to educate employees and customers on
these changes, and how to prepare for
changes in the future.
What are some of the major changes made
to FDIC, and why were they made?
The FDIC extended the insurance on its
accounts temporarily from $100,000 per
depositor per bank to $250,000. Those
cover checking accounts, savings, CDs
and self-directed IRA accounts that people would deposit within an institution.
The second one is an additional
increase that gives noninterest accounts,
checking accounts, unlimited insurance.
The FDIC did extend that through Dec.
31, 2009, where at that point it will evaluate the state of the market and where
things are. Those two changes were
important at the time because of what
was happening in the financial market.
There were a couple of failures — the
IndyMac failure was one of the larger
ones, and that’s where things started to
unravel a bit. This helps to create more
consumer confidence, because the last
thing you want is for folks to do things
irrationally, like take their money out of
the bank and keep it themselves at home
or somewhere else. When you see bank
failures, people start to think that way,
but it’s unsafe to do that.
How do these changes affect businesses?
From the standpoint of people over
that $100,000 range, it gives them additional comfort that those funds are
insured, in the case that something
would happen to the institution they’re
depositing with. By giving unlimited coverage to checking accounts, that was
something that business customers felt a
little lost in the initial FDIC move,
because the larger amount of funds that
a business has are usually in a checking
account. Usually corporations and nonprofit organizations will have some specific guidelines that are mandated by
their boards in terms of how they invest
excess funds outside of their operating
accounts. When the FDIC was able to give unlimited insurance to the checking
account, where typically a lot of businesses will move money out of the
checking account, they had to decide
whether they wanted to keep more
money in the checking account in the
immediate future because of the insurance aspect of things.
How should businesses educate their key
employees and customers about these
changes?
FDIC has an excellent Web site
(www.fdic.gov), and that’s what we
offered up to our customers. It walks you
through the process step by step and
answers questions. It has an 800-number
you can call where associates will pick
up immediately and answer questions.
The second piece is with businesses; it’s
probably a good time to review what
your investment strategies are and the
policies for the company and make sure
that everything is in line with some of the
changes that have happened this year.
Should businesses expect more changes in
the future if the economy continues to go
downhill?
I would say yes, from the standpoint
that the FDIC and the government are
proactive and ready to react to economic
conditions if they see the need. So being
ready for change is paying attention to
what is happening and using resources,
specifically around the FDIC. There are a
lot of changes out there from economic
conditions that are nonfinancial-market-related that companies are going to have
to pay attention to and do. General
preparation for businesses is the key.
The FDIC and the Fed themselves show
that they’re prepared to act if necessary,
to make sure that the economy is as stable as it can be in a situation like this.
JIM PAUL is senior vice president of retail administration at Fifth Third Bank. Reach him at (813) 306-2511 or [email protected].
