Financial safety net Featured

7:00pm EDT January 26, 2009

The current economic conditions can be scary, but several changes have been made in the banking arena to provide a safety net to business owners and consumers worried about their finances. The Emergency Economic Stabilization Act, passed in October, temporarily increased the basic amount of Federal Deposit Insurance Corporation insurance for checking, savings, CDs, negotiable order of withdrawal accounts and self-directed retirement accounts, while an additional increase for noninterest bearing transactions was made two weeks later.

“A lot of people can be hurt in times like this when they make irrational decisions,” says Jim Paul, senior vice president of retail administration at Fifth Third Bank. “And understandably so when it’s a dynamic market like it is, people do react. Get all the facts and information before you make any decisions around your finances.”

Smart Business spoke with Paul about how to sift through these changes, how to educate employees and customers on these changes, and how to prepare for changes in the future.

What are some of the major changes made to FDIC, and why were they made?

The FDIC extended the insurance on its accounts temporarily from $100,000 per depositor per bank to $250,000. Those cover checking accounts, savings, CDs and self-directed IRA accounts that people would deposit within an institution.

The second one is an additional increase that gives noninterest accounts, checking accounts, unlimited insurance. The FDIC did extend that through Dec. 31, 2009, where at that point it will evaluate the state of the market and where things are. Those two changes were important at the time because of what was happening in the financial market. There were a couple of failures — the IndyMac failure was one of the larger ones, and that’s where things started to unravel a bit. This helps to create more consumer confidence, because the last thing you want is for folks to do things irrationally, like take their money out of the bank and keep it themselves at home or somewhere else. When you see bank failures, people start to think that way, but it’s unsafe to do that.

How do these changes affect businesses?

From the standpoint of people over that $100,000 range, it gives them additional comfort that those funds are insured, in the case that something would happen to the institution they’re depositing with. By giving unlimited coverage to checking accounts, that was something that business customers felt a little lost in the initial FDIC move, because the larger amount of funds that a business has are usually in a checking account. Usually corporations and nonprofit organizations will have some specific guidelines that are mandated by their boards in terms of how they invest excess funds outside of their operating accounts. When the FDIC was able to give unlimited insurance to the checking account, where typically a lot of businesses will move money out of the checking account, they had to decide whether they wanted to keep more money in the checking account in the immediate future because of the insurance aspect of things.

How should businesses educate their key employees and customers about these changes?

FDIC has an excellent Web site (, and that’s what we offered up to our customers. It walks you through the process step by step and answers questions. It has an 800-number you can call where associates will pick up immediately and answer questions. The second piece is with businesses; it’s probably a good time to review what your investment strategies are and the policies for the company and make sure that everything is in line with some of the changes that have happened this year.

Should businesses expect more changes in the future if the economy continues to go downhill?

I would say yes, from the standpoint that the FDIC and the government are proactive and ready to react to economic conditions if they see the need. So being ready for change is paying attention to what is happening and using resources, specifically around the FDIC. There are a lot of changes out there from economic conditions that are nonfinancial-market-related that companies are going to have to pay attention to and do. General preparation for businesses is the key. The FDIC and the Fed themselves show that they’re prepared to act if necessary, to make sure that the economy is as stable as it can be in a situation like this.

JIM PAUL is senior vice president of retail administration at Fifth Third Bank. Reach him at (813) 306-2511 or