Regulatory Reality

Apr 21 2009   8:12PM GMT

FDIC: More than just a sticker on the bank’s door.

David Schneier David Schneier Profile: David Schneier

I opened my front door last week and found my industry waiting for me on my very own doorstep, seriously.

The Raleigh News and Observer had a story on page one about how U.S. Senator Richard Burr called his family during the early days of the banking crisis last Fall and instructed them to withdraw as much money as they could from their bank accounts via ATM in reaction to the onset of the economic crisis.  Apparently what he heard during closed door sessions with our government leaders scared him so much that he was willing to be amongst the first to start a run on our banks.  And the amazing part of the story is that he’s been fond of sharing this story during speeches in the time since as a way of underscoring how dire things were.

From the cheap seats where I write, I would have to say that the only thing the story itself and the retelling of it time and again underscores is that being a U.S. Senator does not indicate any particular ability to comprehend or apply information.  It also serves as a reminder that despite being presented with evidence to the contrary, people believe what they hear ahead of what they read.  Because every time you’ve been in an FDIC insured bank there are signs all over the place that clearly state that “Each depositor [is] insured to at least to $100,000”.

I recall earlier in 2008 when the first set of banks went under due to worsening market conditions Sheila Bair, the person running the FDIC, stated loud and clear that all depositors money was safe up to the $100k limit.  She calmly and rationally explained how things were going to work, how each depositor would have unrestricted and uninterrupted access to their money as if though nothing had happened and that there was absolutely no reason to panic.  And she was right.  In the months since that first time (with IndyMac) she’s had plenty of chances to hone her “all is well” mantra as one bank after another simply reached the end of their useful lives.

When people started questioning what would happen if they had more than the covered amount, Ms. Bair worked with the various financial leaders in our government to have that amount temporarily increased to $250,000 (good through at least year end, 2009) thus assuaging the concerns of that very small percentage of people who might have such worries.  But at no time since this nightmare began to firm up nearly a year ago has anyone even remotely paying attention been presented with any evidence whatsoever that there are legitimate concerns as to the viability of the FDIC.

As matter of fact (and of interest), the FDIC has always fulfilled its promise in any situation during which it was required to do so… always. Senator Burr should have known that all along.

Sadly in the time since the story broke Senator Burr has been doing a little two-step trying to soften the absurdity of his statements saying that he “did what many people did.” Well, no, not really. He acted based on privileged information and made certain to take immediate steps to protect his constituents, except it was limited to those living in his home rather than his home state. But he didn’t think to warn me, or you or anyone else trusting their leadership to look after their best interests. His assertion that other people did exactly the same thing, particularly those from North Carolina, doesn’t hold up under scrutiny either. I’ve asked at least a half-dozen friends (and fellow Tar Heels) over the past week or so if they ever thought to run to the bank last Fall and horde cash; none did. They all wondered why I was asking and I was all too happy to share with them the story of their Senator, Bank-run Burr (kudos to MSNBC’s Rachel Maddow for that clever nickname).

The good news is that the FDIC has all of our backs, unlike Senator Burr. The better news is that I’m registered to vote in North Carolina and will have the privilege to let the Senator know first hand whether or not I have his back come Election Day 2010.

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