FDIC Chairman Pleads with American Account Holders to Leave Your Money At The Bank

This is an incredible and unprecedented move from the federal government and one that should show exactly what they are thinking in terms of the financial impact of COVID-19 and the resulting global pandemic.

There is currently $250 TRILLION in global debt right now and with this global pandemic halting the world’s top economies, some, if not much of this debt just won’t be paid.

The coronavirus has resulted in nearly 10 Million unemployment claims in the U.S. alone and this number will only increase in the coming days, weeks, and months.

Bear in mind that the Fed projected as high as a 32% unemployment rate, according to USA Today:

“The latest unemployment estimate is even worse than the 30% jobless rate St. Louis Fed President James Bullard projected earlier in March. Faria-e-Castro says he arrived at his figures by combining data in two other blogs by his colleagues at the St. Louis Fed. One estimates that 66.8 million Americans work in occupations at a high risk of a layoff, including sales, production and food preparation and services. Another blog figures that 27.3 million workers are in occupations that require close proximity to other people, such as barbers, restaurant servers and flight attendants. Since there’s a significant overlap between those two groups, Faria-e-Castro took the average of the two figures -- 47 million, which equate a 32.1% unemployment rate.”

Many of these people have no savings to rely on so they will soon be faced with a grim choice: Make their debt payments or buy food to survive.

To combat this, the government has delayed, suspended, or deferred evictions, foreclosures, and rent and mortgage payments.

Who will take the hardest hit? The banks.

Sound familiar?

In 2008, millions of people stopped paying their mortgages and the entire banking system almost failed completely. This is an eerily similar situation.

It is not just banks this time though. Millions of businesses are in big trouble as well.

Statistics show that most businesses only have cash reserves to last 27 days.

In some industries, like the restaurant industry, that number is as low as 16 days on average.

It is not just small, local businesses either. The cruise, airline, hospitality, and retail industries are all teetering on the edge as well.  

If these businesses have to shut for months, they will be forced to close and many will never reopen. This means more debt will ultimately go unpaid.

When small businesses fail, and can’t pay their debt, it is the business-owners problem. When huge corporations fail, and can’t pay their debt, it is the banks' problem.

While all this coronavirus-related economic strife may not cause the banking industry to collapse, it is safe to say that the banks are facing huge threats right now.

These defaults could easily reach into the hundreds of millions of dollars and even reach a trillion.

People who say that the banks are “too big to fail” do not truly understand the situation these institutions are currently facing.

BUT… the good news is… the FDIC says the banks are going to be OK!

Come on.

And what’s worse, the FDIC knows this better than anyone.

The FDIC, which provides “insurance” for banks, has $109 billion. The U.S. banking industry is a $13 trillion industry. Does this mean that less than 1% of the industry is actually insured? (Not a rhetorical question, BTW, but a real concern.)

How are they justifying this? By saying that no one has lost their bank deposits since the start of the Great Depression in 1933.

While this may be true, there has never been a worldwide economic shut down – even in 1933 – like the one COVID-19 is causing.  

So, back to the original point emphasized in the post, why is the FDIC creating marketing material asking us not to take our money out of the banks?

Because the FDIC knows how dire the situation looks. And you can take that as one of two possible meanings--the difference, night and day.

And, as smart as it is to keep cash reserves at home, if a lot of people woke up and realized what’s happening, perhaps it wouldn’t be hard to imagine the banks crumbling down.