Supposedly “insured” depositors in Cyprus thought there was nothing to worry about until they woke up on Saturday with a haircut between 6.75% and 9.9% on their money in the bank. Today the American Banking Association reminded Americans that there is absolutely nothing to worry about when it comes to the sanctity of US deposits. [Really?] Words: 385; Table: 1
So writes Tyler Durden (www.zerohedge.com) in edited excerpts from his post entitled US Deposits In Perspective: $25 Billion In Insurance, $9,283 Billion In Deposits; $297,514 Billion In Derivatives.
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Durden’s post goes on to say in further edited excerpts:
ABA’s Message to U.S. Bank Depositors[In its release the ABA issued the following – supposedly reassuring – statement:]
While the crisis in Cyprus is a real concern for depositors in Cypriot’s banks, it has no implication for depositors in U.S. institutions. Depositors in U.S. banks are insured up to $250,000 and no insured depositor has ever lost money in a bank failure. The U.S. banking industry has rapidly returned to health with strong earnings, lower losses and significant increases in capital.
The FDIC insurance fund has over $25 billion in reserves and the banking industry – which bears all the financial costs of supporting the FDIC – pays over $12.3 billion each year to assure adequate funding.
Simply put, U.S. insured depositors are safe and their deposits are protected by a strong FDIC fund, a financially secure banking system and the full faith and credit of the U.S.
The Truth of the Matter
Sadly, it may be the case that the ABA is being just modestly disingenuous in its statement. Why? Instead of explaining it in detail, here is a snapshot that does more than thousands of words ever could.
Chart drawn to scale.
The $25 billion in touted deposit insurance is supposed to preserve and protect (granted not in their entirety) some $9,283 billion in total US deposits. A far bigger problem, however, is when one considers the “asset” side of the US banks’ ledger: remember deposits are unsecured liabilities and for US banks, sadly, over the counter derivatives represent the vast majority of “off the books” assets.
According to the latest OCC quarterly report, the total derivative notional outstanding of the top 25 holding companies is $297,514 billion, or nearly $300 trillion.
In other words there are 32 times more notional derivatives than there are total deposits, while the ratio of gross derivatives to deposit insurance is a [disconcerting]…11,900-to-1. With that, we hand it back to the ABA to comfort all US depositors that Cyprus could never possibly happen in the US.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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