Make us your home page
Instagram

Firms step in as deposit guarantee is scaled back

Today, $1.5 trillion of bank deposits lose an unlimited government guarantee that was granted during the financial crisis to assure skittish customers that their cash was safe. For a handful of boutique firms that service banks, it's a boon for business.

The accounts losing the insurance are used by businesses, municipalities and other entities like nonprofits willing to forgo any interest to have immediate access to their large pools of cash. These accounts hold about 20 percent of all deposits in U.S. banks. Starting today, only $250,000 in each noninterest-bearing account will be backed by the Federal Deposit Insurance Corp.

Now a scramble is under way to make sure these customers do not pull large sums out of banks, particularly community banks that have benefited from the guarantee. Because a depositor is barred from spreading out $1 million into four accounts within the same bank, many smaller banks are turning to a handful of specialized cash-management firms that can split up deposits into multiple $250,000 chunks and distribute them among a network of banks, each of which can insure $250,000.

One firm doing this parceling work, Reich & Tang, has seen an influx of 25 new banks in the last few weeks sign up for the program, a 20 percent growth. Deposits managed by another firm, Stone­Castle Cash Management, have surged to roughly $3 billion from just over $2 billion in September.

The end of the unlimited insurance, known as the Transaction Account Guarantee, is the latest twist in the government's effort to scale back its support for the financial system, and the banking industry's effort to mute the impact of the new lower limits. Many analysts assume that even with the end of the government guarantee, the vast majority of the deposits will remain in the banks because the government will continue serving as some sort of backstop for most of the $1.5 trillion.

For the nation's largest banks, there is a widely shared assumption that the government would be forced to provide a backstop to protect depositors in a crisis, as it did in 2008.

Firms step in as deposit guarantee is scaled back 12/31/12 [Last modified: Monday, December 31, 2012 8:21pm]
Photo reprints | Article reprints

Copyright: For copyright information, please check with the distributor of this item, New York Times.
    

Join the discussion: Click to view comments, add yours

Loading...
  1. Pinellas construction licensing board needs to be fixed. But how?

    Local Government

    LARGO –– Everyone agrees that the Pinellas County Construction Licensing Board needs to be reformed. But no one agrees on how to do it.

    Rodney Fischer, former executive director of the Pinellas County Construction Licensing Board Rodney, at a February meeting. His management of the agency was criticized by an inspector general's report. [SCOTT KEELER   |   Times]

  2. New owners take over downtown St. Petersburg's Hofbräuhaus

    Retail

    ST. PETERSBURG — The downtown German beer-hall Hofbräuhaus St. Petersburg has been bought by a partnership led by former Checkers Drive-In Restaurants president Keith Sirois.

    The Hofbrauhaus, St. Petersburg, located in the former historic Tramor Cafeteria, St. Petersburg, is under new ownership.
[SCOTT KEELER  |  TIMES]

  3. Boho Hunter will target fashions in Hyde Park

    Business

    Boho Hunter, a boutique based in Miami's Wynwood District, will expand into Tampa with its very first franchise.

    Palma Canaria bags will be among the featured items at Boho Hunter when it opens in October. Photo courtesy of Boho Hunter.
  4. Gallery now bringing useful art to Hyde Park customers

    Business

    HYDE PARK — In 1998, Mike and Sue Shapiro opened a gallery in St. Petersburg along Central Ave., with a majority of the space dedicated to Sue's clay studio.

     As Sue Shapiro continued to work on her pottery in St. Petersburg, her retail space grew and her studio shrunk. Now Shapiro's is bringing wares like these to Hyde Park Village. Photo courtesy of Shapiro's.
  5. Appointments at Raymond James Bank and Saint Leo University highlight this week's Tampa Bay business Movers & Shakers

    Business

    Banking

    Raymond James Bank has hired Grace Jackson to serve as executive vice president and chief operating officer. Jackson will oversee all of Raymond James Bank's operational business elements, risk management and strategic planning functions. Kackson joins Raymond James Bank after senior …

    Raymond James Bank has hired Grace Jackson to serve as executive vice president and chief operating officer. [Company handout]