bank deposits secrets

Bank Deposits: 3 Secrets Your Banker Won’t Tell You

In 2014 former Harvard economics professor and Goldman Sachs employee, Terry Burnham was concerned about his bank deposits and withdrew over $1 million from his checking account at the Bank of America (BoA).

Why? In addition to no interest being earned in his account, BoA (as with most large banks) had loaned out the vast majority of depositors’ money and was heavily invested in the derivatives market.

If even a small percentage of its loans go bust, the bank is at risk for bankruptcy similar to what happened to Lehman Brothers in 2008. Other big banks like BoA, AIG, Goldman Sachs, Morgan Stanley, Merrill Lynch, Bear Stearns, and many more institutions would have suffered the same failure that year had the government and the Federal Reserve not stepped in to bail them out.

As part of the Dodd-Frank Act of 2010, banks that are going bankrupt can no longer receive emergency funds from the Fed under any circumstances.


Where does this leave you and your bank deposits?


bank deposits1. Your bank deposits are considered unsecured credits. That basically means you loan the bank your money but they put up no collateral for that loan.

Instead, you get a basic promise to repay you the money you’ve deposited. But, not necessarily all at once. If we all went to the bank at the same time, there wouldn’t be nearly enough money for all of us, just like the BoA example above. 

But, what is “unsecured credit”? An “unsecured” loan is like a credit card. If you don’t pay, there is no property the bank can seize. However, a “secured” loan is like taking out a car loan. If you don’t pay, the bank takes your car.


2. The FDIC doesn’t have enough money to cover all the bank deposits. It covers deposits up to $250,000.

bank depositsThe FDIC fund had only $67.6 billion in it as of June 30, 2015. However, there were about $6.35 trillion in deposits for that same time period.

The FDIC has a credit line with the Treasury, but even that only goes to $500 billion.


3. Under both the Dodd-Frank Act and the Bankruptcy Reform laws of 2005, derivative claims have super-priority over all other claims because they put up “collateral” for those bets.

If there is another major derivatives implosion as in 2008 and a number of big banks fail, here’s the order in which claimants would be paid:

  • Derivative claimants.
  • Then state and local governments’ deposits which are considered secured loans to banks.
  • Then depositors (you), stock holders, and other debt holders – all of whom are unsecured creditors.

There may not be anything left for the unsecured creditors. When Lehman Brothers failed in 2008, unsecured creditors (depositors) got eight cents on the dollar.



bank deposits banking systemWhat’s the solution?

There seem to be no perfect solutions within our current banking system, but here are a few to ponder:

  • Seek out smaller banks with good credit ratings that do not participate in derivatives trading. Here is a list of the top 25 banks (p.26) dealing in derivative trades.
  • Check out the world’s 50 safest banks published annually by Global Finance magazine. The first U.S. bank on the list ranks #30. Can you guess which one it is?
  • Investigate opening an account through a credit union. At credit unions, customers are members and owners.
  • Monitor banks’ and institutions’ financial stability.
  • Keep some cash on hand in the event of a “bank holiday”.
  • Pay close attention to banking legislation, rule-making, and enforcement.
  • Park a small portion of your portfolio into physical gold bullion which is held outside the banking system.


Let me show you how to set up your private gold savings account.


Believe in the best. Prepare for the worst.

Let’s talk.  Was this blog helpful to you? Leave comments below.

good money







I am an independent affiliate and not a financial planner or investment advisor. The information on this site is for educational purposes and not intended to give financial, investment, legal, or tax advice. The postings on my blog are my personal opinions and do not represent the positions, strategies and opinions of any company.


  • Ruthanne

    Reply Reply March 4, 2016

    Thanks for the link – very helpful! Glad my bank isn’t on there!


      Reply Reply March 4, 2016

      Good news for you Ruthanne! Glad it was helpful.

      Thanks for your comments.

  • Linda Bomba

    Reply Reply March 5, 2016

    I didn’t know that thanks for sharing James.


      Reply Reply March 5, 2016

      Glad to share it Linda!

  • Kurt Leona

    Reply Reply March 5, 2016

    Wow These are all new to me! Thanks for sharing very helpful infomation


      Reply Reply March 5, 2016

      I appreciate your comments Kurt!

  • Johan Van Aarde

    Reply Reply March 7, 2016

    Hey James, How are you? Great article I found your post in Viral content buzz. Just want to say you got a very incredible blog about banking deposits. Very informative! I will for sure remember your words and tips too. Im looking forward to keep in touch 🙂


      Reply Reply March 7, 2016

      Great to hear, Johan! Appreciate your comments. Yes, let’s keep in touch!

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