Smart Banking

August 4, 2008

What protects a practice’s liquid assets?

The IndyMac Bank default and subsequent Federal Deposit Insurance Corporation takeover. The rash of home mortgage problems. The Freddie Mac/Fannie Mae bailouts. All this got me thinking: What protects a practice’s liquid assets -- i.e., those deposited in a bank?

I went to the FDIC Web site for some answers. First, a quick history:

During the first four years of the Great Depression, 9,000 banks failed; 4,000 never reopened. President Franklin D. Roosevelt named public confidence as the major underpinning of the financial world, causing him to sign into law the Banking Act of 1933. This created the FDIC. In 1934, only nine banks failed.

Here’s how your money is treated:

  • A corporate account is insured by the FDIC up to $100,000.

 

 

  • Multiple corporate accounts under the same name in the same bank are combined and insured up to $100,000.

 

 

  • A personal account (or multiple personal accounts under the same name in the same bank) are combined and insured up to $100,000.

 

 

  • Personal joint accounts work a bit differently. If, for example, a husband, wife, and two children are each listed on an account that has a “payable on death” designation, that account -- or combination of multiple accounts under the same name -- is insured up to $400,000.

What’s the important message here for practices? Corporate accounts within the same bank are treated as one entity, regardless of the number of signers, and so are protected only up to $100,000. Even if multiple individuals can sign checks on your corporate account -- say, five people in your practice -- you are not covered for $500,000. Another important point: A bank with several branches is still considered one bank.

 

Therefore, strive to keep tabs on your bank’s solvency status. How? You can easily check out banking information on the Web through any of the 24-hour news outlets, or the plethora of business channels on cable TV. They provide constantly updated information on the financial status of banks.

To increase the protection of and access to your funds, consider spreading your money out to other banks if you think your practice will have more than $100,000 on deposit for any period of time. As long as you stay well within this hundred grand upper limit at each institution, you can feel good about your money’s safety -- and your ability to get to some funds if another major institution does fail.

You might be thinking, “As if my practice carries this amount of money all the time,” chuckle, chuckle. But consider that payroll, end-of-quarter bonuses, and the like will swell your account balance periodically, which may indeed push you over the $100,000 limit, if only for a few days or weeks.

FDIC insurance does not make a bank fail-proof, but it does instill confidence in depositors that their money is safe. Still, be wise and stay attuned to events in the financial world. The announcement of IndyMac’s takeover by the FDIC may have seemed abrupt, but there had been prior discussions in the news about its threatened solvency. I can only hope that IndyMac’s depositors were prepared. If not, an ugly surprise may await any who failed to comprehend and honor the FDIC guidelines.

One final thought: The state of the U.S. healthcare system and the need to reform it is much discussed these days. Some solutions put forth, such as national health insurance, require government backing. This has provoked a tremendous amount of hullabaloo from detractors of such federal involvement. Warranted? Maybe. But the FDIC -- a government institution -- is succeeding in protecting the pockets of the American people. I’m just saying.

Owen Dahl, FACHE, CHBC, is a nationally recognized medical practice management consultant with over 24 years of experience in consulting for and managing medical practices and author of Think Business! Medical Practice Quality, Efficiency, Profits. He can be reached at odahl@comcast.net or 281 367 3364.