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When Financial Businesses Fail: Protection for Account Holders, November 20, 2008 1 (November 20, 2008)

handle is hein.tera/crser0049 and id is 1 raw text is: Order Code RS21987 Updated November 20, 2008 ~ CRS Repo for Congress When Financial Businesses Fail: Protection for Account Holders Walter W. Eubanks Specialist in Economic Policy Government and Finance Division Summary Lawmakers have long recognized the importance of protecting some forms of financial savings from risk. Such vehicles clearly include deposits in banks and thrift institutions and credit union shares. Remedial and other safety net features also cover insurance contracts, certain securities accounts, and even defined-benefit pensions. Questions over how to fund and guarantee Social Security, along with the troubles of the Pension Benefit Guaranty Corporation, have renewed interest in these arrangements. This report portrays the salient features and legislation of account protection provided by the Federal Deposit Insurance Corporation, the National Credit Union Share Insurance Fund, state insurance guaranty funds, the Securities Investor Protection Corporation, the Pension Benefit Guaranty Corporation, and a discussion of the FDIC' s Temporary Liquidity Guarantee Program that extends unlimited temporary deposit guarantees to certain depositors and debt held in insured depository institutions. It ends with a discussion of monoline insurance companies. Overall, it provides resources for further analysis of each protective arrangement and will be updated as appropriate. Analysis Analysts and lawmakers view many financial businesses as having an important role in the U.S. economy, receiving protection for their individual account holders against loss, should the firms fail. Such protections exist both to protect the individuals from risks they probably could not discern for themselves, and to protect the economy against the effects of financial panics if failures occur. Panics, the attendant collapses of wealth, and severe consequences for the economy occurred before Congress created federal deposit insurance in 1934. Until the enactment of the Emergency Economic Stabilization Act (EESA) of 2008, government policy protected customers of depository institutions - banks, thrift institutions, and credit unions - in full for accounts up to $100,00 and up to $250,000 for retirement accounts. But the enactment of EESA on September 23, 2008 immediately raised the maximum deposit insurance to $250,000, leaving retirement accounts at $250,000 until December 31, 2009. Other institutions such as insurance companies, securities broker/dealers, and many pension funds receive government or government-sponsored guarantees on specified accounts. Congressional Research Service The Library of Congress Prepared for Members and Committees of Congress

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