$1 Trillion In US Bank Deposits Held Abroad Will No Longer Be Insured

$1 Trillion In US Bank Deposits Held Abroad Will No Longer Be Insured (ZeroHedge, Sep 10 , 2013):

In the aftermath of the Cyprus bail in (and to a lesser extent the Polish pension fund debacle), it is understandable if depositors are a little sensitive about the insurance, and thus confiscability (sic), of their deposits. Starting today, following a 5-0 vote by the FDIC, depositors in foreign US bank branches will officially no longer have recourse to a $250,000 in deposit insurance. The notional amount of deposits at risk: $1 trillion. This is not a new development: the FDIC rule to curb insurance on this category of deposits was proposed earlier this year, and today was the formalization. However, questions do arise: if a major US depository institution does fail domestically, the financial state of their depositors abroad will hardly be the biggest issue.

WSJ adds:

The move rejects what officials called a “creative” legal proposal from the banking industry. “We don’t want to become the deposit insurer for the world,” FDIC officials said at a briefing.

The FDIC’s action was prompted by the move last year by U.K. regulators to propose changes in the way deposits held at overseas branches should be treated. FDIC officials said the U.K. proposal potentially opened the door to those deposits being insured by the FDIC; the rule being finalized Tuesday clarified that isn’t the case, said FDIC Chairman Martin Gruenberg.

“The final rule protects the deposit insurance fund, while at the same time recognizing both the FDIC’s commitment to maintaining financial stability through the prompt payment of deposit insurance and the evolving nature of the global banking system,” Mr. Gruenberg said in a statement.

Naturally, the whole point is to generate the “risky” impetus for foreign depositors to pull their money out of the “safety” of deposit accounts and buy risky assets, a trend which started with Cyprus but will certainly not end there.

However, a different question emerges: if the US offshore bank branches will no longer be insured by the US, the logical implication is that deposits of foreign banks in the US are not insured either. Of course, the good thing about deposits held by foreign banks in the US are mostly Fed excess reserve derived, as the following chart shows, which once again shows that of the $2.4 trillion in deposits in all US commercial banks, a majority, or $1.25 trillion belongs to foreign banks operating in the US. It also whos the total amount of Fed reserves in the system. The fact that the two are identical is not a coincidence.

1 thought on “$1 Trillion In US Bank Deposits Held Abroad Will No Longer Be Insured

  1. The trend downward continues. If people cannot trust the banking system, it cannot stand. Banking is built on trust. Over the past year, MF Global stole over a billion dollars in customer deposits, Jon Corzine walks free, no evidence to charge him says the corrupt court system.
    The people who lost their savings and cash were given forms to fill out. I would like to know if they ever got their money back, that subject has been buried.
    Next, Cyprus confiscated bank depositors money, creating a new term, a haircut, of wealthy depositors. Spain quickly followed.
    Last week, Poland confiscated private pension funds. They had to do it because their debt level exceeded their net worth……so just stealing the money of the people is okay.
    Now this. Mattresses are going to be used to save money….nobody is going to put their money in places where it can be confiscated.
    Banks are lobbying to force credit unions to become banks. Our little movement of moving our money out of the big banks must be working.
    The real elephant in the room is currency. In a healthy economy, the cash supply is consistent with the growth, the GDP of the nation. Thanks to QEs all over the global banking systems, it is way out of sync, and confiscation is a tool being used to offset the day when the truth comes out.
    The truth will come out. I think of what FDR’s FED chairman, Mr. Eckles said in 1952 when asked what caused the crash of 1929. It applies here as aptly as then:
    “As in a poker game, when the chips are concentrated in fewer and fewer hands, the other fellows can only stay in the game by borrowing. When their credit ran out, the game stopped.”

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