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Massachusetts Bank Deposit Insurance Coverage

Updated on October 18, 2011

I had written an article about MA CD Rates and discovered that many of the Massachusetts' banks up until the 1980s were not FDIc insured. During the Great Depression the US Government created the FDIC in 1933 to insure deposits that the banks held. It originally covered deposits up to $2,500.00. Fairly significant (obviously) increases have been made over the years. In 1974 it went from $20,000 to $40,000. In 1980 it went up to $100,000 and this year a temporary increase to $250,000 was made permanent.

For some reason, back in 1933 many of the banks in Massachusetts opted out. In 1934 Massachusetts created their own fund called the Deposit Insurance Fund or DIF. The DIF covered all deposits at a bank. If the bank was also FDIC insured, it covered the amount above the FDIC Limit.

In my research I discovered it wasn't easy to opt-out. "To fund the program, banks were to be assessed one-half of one percent of their assets. Bankers hated it. Francis Sisson, then-president of the American Bankers Association, declared the concept of paying into a fund to insure a bank’s losses "unsound, unscientific, unjust, and dangerous." Even President Roosevelt disliked it but public support of it was too great to ignore. While most bankers merely hated the plan, 'One-Hundred Percent John' loathed it." One banker stood agains it, John Milton Nichols. He was known for keeping 100% liquidity and having the ability to pay back all of his depositors at once if they ever requested it. Despite his approach, the FDIC insisted and eventually even threated charges. After the FDIC lowered the premium he gave in. However, he still took plenty of jabs at the FDIc and Roosevelt administration. I encouage you read both blog posts about his tangles with the law.

So although, I couldn't find the answer directly, it would seem the creation of the DIF by Massachusetts allowed banks to remain exempt from the FDIC. Although, many banks carried dual insurance. However, it would seem that the S&L crisis of the 1980s and subsequent multi-bank failures moved the last hold-outs to carry FDIC insurance. Unfortunately, despite reading through numerous documents from that time, I couldn't find anything that actually gave reasons. I even searched many of the bank names plus the date range for the 80s with no luck. I suppose my only real way to prove it would be to use a MicroFiche machine at a university or city library and search through old newspapers. However, given that I am in California and I would need old newspapers from Massachusetts, my chances seem slim.

My theory does seem likely though. I found over twenty banks that failed during the 1980s. And although, the DIF still exists and is quite strong, it must have taken quite a hit covering the non-FDIC insured deposits. I found two banks that were issued FDIC insurance in 1985 and then failed in 1988. Those were, The Co-operative Bank of Concord and Beverly Savings Bank. I bet the DIF felt relieved.

I would love to know if anyone out there has some evidence that can prove or disprove my theory. Feel free


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