Last week, for the third time in two months, another bank in the United States failed. Maybe it is time to discuss exactly who provides oversight for our financial institutions, and how that operates, and whether this affects your money. If someone asked you to donate to a non-profit organization, would you not want to know how it operates, what services it provides and where your donations are being deployed before you make a donation?
Today, let’s examine where you put your money and who oversees its management.
Bank Oversight
Perhaps the most popular fact known to the public with regards to their bank account deposits is that it is insured by the Federal Deposit Insurance Corporation (FDIC ) up to $250,000. But is that all you need to know to be comfortable? I would argue absolutely not! Why? Because recent evidence shows that when the bank runs occur, even depositors with less than $250,000 in their account, transferred their monies into larger banks despite the FDIC assurance of coverage.
Before you deposit your money into a financial institution you should consider how it operates and not just how much of your money is insured. What you should know is that banks in the country are regulated by either the federal government the state or both. The key to who regulates your bank is predicated upon how it is chartered. Because of this, you should not assume that your bank is regulated by the Federal Reserve System (the FEDS).
In actuality, there are three organizations that regulate banks. These are, the Office of the Comptroller of the Currency (OCC), The Federal Reserve System (FEDS), and the Federal Deposit Insurance Corporation (FDIC). They all have different roles and responsibilities. But if you had to choose one organization to focus on, that should be the Federal Reserve System.
The federal Reserve System is responsible for regulating the financial system and managing the country’s monetary policy. This is key to bank failures which I will explain later. Get some understanding of the FEDS before you start depositing your money in any bank.
Credit Unions
The story is the same when it relates to credit unions, since the regulation by either the Federal Reserve System or the State is determined by how the credit union is chartered. State credit unions are the respective state agencies. However, those chartered federal credit unions are regulated by the National Credit Union Administration( NCUA).
Savings and Loan Associations
The final institutions you should know something about are savings and loan associations. These institutions were once regulated by the Office of Thrift Supervision (OTS), but are now regulated by the Federal Savings Association (OCC), the Federal Savings and Loan Holding Companies, and the Federal Deposit Insurance Corporation state-chartered savings associations (FDIC).
One of the regulatory responsibilities of the OCC is to execute stress tests among these institutions. A stress test is administered to measure an institution’s liquidity in the worst-case scenarios.
Why This Matters
Now that you have some idea concerning who regulates where your monies are invested, it may provide some comfort or worry when systems fail. On April 28, 2023, the Board of Governors of The Federal Reserve System issued a report about the collapse of the Silicon Valley Bank (SVB) and the banking system.
While the report is more than 100 pages, it provides some insightful details and confessions. In the April report, the FEDS confessed that the regulatory oversight and supervision needed over SVB and other banks have not been followed. Federal Regulators knew of some of the weak infrastructure and failings of banks, but were too friendly, comfortable with banks and their boards and did not want to “rock the boat” despite what the financial data showed; and this, therefore, caused the bank(s) to fail. If federal regulators are not going to do their job, then how confident can you be in the system?
Your Due Diligence
Perhaps one response is to know if your bank is regulated by both the FEDS and state regulators so that the chances of failure may be diminished. Another viewpoint would be, depending on how your bank or financial institution is chartered, it may determine whether it is regulated by three or more government agencies. That’s important only because banks must undergo stress but it could determine the frequency of such tests.
One of the issues with SVB is that even though it crossed the threshold and met the criteria for a category IV bank in 2021, the stress test was not scheduled to occur until 2024.
The lesson from this Money Monday is, don’t just put your money in any bank. Understand how and who manages or regulates where your funds are invested beyond how much of your funds are insured.
WHAT’S UP!
Today’s What’s Up is about travel. Yes, the holiday traveling season is upon us and two
bills have been introduced in the Senate that could provide passengers with more rights. The first bill would provide passengers $1,350 when denied boarding because of overbooked or oversold flights and also refund baggage charges for damaged bags.
The second bill would prohibit airlines from charging unreasonable baggage and seat selection fees. It would also provide passengers a refund for significant delays when it is actually the airline’s fault, and not some weather excuse.
Stay tuned for these potential changes, as they could increase travel fees. And that’s what’s up!
Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC . Give2Get Rich, LLC 2023. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.
