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Stories from the Chair: The US Banking System

written by Robin Patin, CFP®, CPWA®

The past several weeks have been difficult for the US banking system. And for Wealth Managers. I’ve spent hours with dozens of clients explaining the functions of the US banking system and – bonds! I’ve spent more time discussing bonds and treasuries in the past several weeks than I have discussing bonds in the past seven years!

As a Wealth Manager, I am used to having difficult calls with clients. Difficult calls can happen with my own family. I manage their investment accounts and my mother and father and my mother and I were on the phone together. For context, my mom was a preschool teacher and my dad was a truck driver for forty years. My parents are still married and live comfortably together in Tennessee. We are originally from New Orleans.

Even as a 40-something year old woman my professional ambitions include making my parents proud and never ever making my mom upset or cry. That day on the phone, my mother’s voice was strained.

“Do you remember when our bank went under in the 1980’s? You were a little kid back then, but our bank went under. I was so upset and scared, that was all the money we had in the world. We had to go and line up outside the bank to see about our money.”

I stopped and thought for a moment. I hadn’t thought about that bank in years. It was called “Security Homestead”. I remember as a child everything in the bank was 20 feet tall including the counters and the tellers. Everything smelled of envelopes. They would also give the kids suckers with an ‘S’ stamped on it. I made sure to go to the bank with my mom or dad whenever they went to collect my candy.

Those candies may have played a small role in my interest in money and investing and career decision to become a Wealth Manager.

My mother thought all our hard earned savings had evaporated. She didn’t know about FDIC insurance and that the federal government insured her deposit. She didn’t know that the Savings and Loans crisis would cause hundreds of other banks to fail across the nation and that the government insured funds up to a limit in each of the affected individuals’ bank accounts.

As I listened to my own mother and my countless clients express concerns about the US banking system, I shared several important points :

  • The FDIC (Federal Deposit Insurance Corporation) insures individual accounts for $250,000. Joint accounts for $500,000. You can have multiple accounts at multiple banks and they are each insured up to $250,000 per individual.

  • How is the FDIC funded? It’s funded by premiums that banks pay for deposit coverage. Not from tax payer dollars.

  • Credit unions are covered under NUCA. So, if your money is in a credit union covered by NUCA, you have a layer of coverage for your money. They have the same level of coverage as the FDIC.

  • Investments are NOT covered under the FDIC. The government assumes that you understand that you’re taking on a level of risk with investing. FDIC won’t cover life insurance policies or crypto or your safe deposit box.

  • CDs are FDIC insured. As are money orders and cashier’s checks.

Some clients have asked me if it’s time to place their money in a shoe box or a hole in their backyard. Well no. This plan has obvious problems (what if there is a fire or a home burglary and you can’t get to your funds!) and the US government has a vested interest in making sure that our banking systems function and that Americans can securely save and spend money in our economy.

I remind my clients that banking is boring. It’s designed so that you don’t think too much about it. Much of the strength of the US government both domestically and abroad comes from the dollar and the strength of our banking systems. We are fortunate to live in a country where bank failures are relatively rare and this fact underpins our national economic position.

My mother sighed. “I don’t know. I just hope this doesn’t go down like it did back in the 1980’s”. I assured her that it wouldn’t. We moved on to talking about the weather and the torrential rains in California. My mother spends much of her time in retirement watching the Weather Channel and obsessing about the latest weather related drama somewhere in the world.

I’m glad that I could reassure my mother about the US banking system. I also re-lived a childhood memory of banks and the important role they played in my early memories of money – and the role that the US bank system plays in all of our lives.

Robin Patin, CFP®, CPWA®

Robin has an established process for gaining a deep understanding of her client’s financial and emotional needs and creating a customized plan to help them achieve their long-term goals. Her philosophy is to go above and beyond her role as a wealth manager to be a true thought partner and champion for her clients.

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