How Sale is Your Money?

More banks failed during 1975 than in any year since World War II--and hardly anyone noticed. The Federal Deposit Insurance Corp. paid out $310 million to depositors in the 13 small U.S. banks that closed their doors, and that pretty much was that. The smooth performance illustrated a fact of paramount importance in any discussion of banking troubles: since the FDIC was created in 1934, the calamitous run on a bank has become a dim memory, and the safety of money deposited in banks has been just short of absolute.

The FDIC insures deposits of up to $40,000 a customer in nearly all the nation's banks. It usually does not go into action until a bank either has failed or is precariously close to it. Rather than paying out money itself to depositors, the FDIC will shop around for a solvent bank that can take over the failing one and merely switch names over the doors, sometimes lending money to the takeover bank or indemnifying it against losses. FDIC loans smoothed the 1974 bailouts of New York's Franklin National Bank and San Diego's U.S. National, two of the biggest failures in U.S. banking history, and no depositors lost anything. Last year the FDIC lent $10 million to Southeast Banking Corp., enabling it to bail out the Palmer Bank Corp. of Sarasota, Fla.

If a bank does go under before it can be rescued, the FDIC dispatches liquidators to go over the books and physically man tellers' stations to dole out money to depositors. Usually they are handing out money four or five days after the bank has closed.

A dramatic example occurred in 1970 when Eatontown National Bank in New Jersey, the victim of a multimillion-dollar embezzlement, was closed by Government order, then invaded by a score of banking agents. When anxious depositors phoned the bank, they heard an operator greet them with "FDIC." Eventually $13.5 million was handed out to 9,904 depositors.

In very rare cases--for instance, when a community's only bank fails--the FDIC will set up a Deposit Insurance National Bank to provide services and will run it for as long as two years, or until investors can be persuaded to establish a private bank.

The FDlC's money is provided not by taxpayers but by the insured banks, which pay premiums equal to one-twelfth of 1 % of their deposits; a $3 billion emergency line from the Treasury has never been used. The deposit insurance fund stands at $6 billion. Over the 42 years of its existence, the FDIC has disbursed $1.6 billion to depositors in some 500 failed banks. All but $247 million has been recovered through sale of assets.

There are limits to the safety provided by the FDIC. It does not insure against losses caused by fire or robberies. And people who have deposits of, say, $60,000 can collect only the first $40,000 if their bank collapses. But even they stand a good chance of getting most of their money back. Legally, depositors get first crack at any money raised by sale of a failed bank's assets.

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