This Chart Should Disturb Every American

Before you go, we thought you'd like these...
Before you go close icon

I don't mean to be an alarmist, but I believe the title of this article is accurate.

The chart below compares the size of the FDIC's Deposit Insurance Fund -- the reserves set aside to cover the loss of insured deposits at failed financial institutions -- to the amount of insured deposits at the nation's three largest depository institutions: Wells Fargo , Bank of America , and JPMorgan Chase . In other words, the FDIC couldn't save one of these banks even if it wanted to.


Now, I know what you're saying: The likelihood that one of these institutions will fail is slim to none. And even if one did fail, it's even less likely that all of the insured deposits would be wiped out.

Fair enough, but here's the problem.

The whole purpose of the DIF is to ensure against tail risk -- that is, risk that's highly unlikely. And as we saw five years ago, the likelihood that one of these massive lenders might be at risk of failure at some point is far from out of the question.

To the second point, moreover, all of the insured deposits wouldn't have to be wiped out. In Wells Fargo's case, only 17% would have to go. I urge you to read that again. The primary fund that ensures the entirety of the nation's deposits would be wiped out if Wells Fargo went under and only 17% of its deposits were necessary to cover liabilities.

That's shocking.

If it isn't already obvious, the point is that too-big-to-fail is a problem.

Get expert advice from The Motley Fool

With big finance firms still trading at deep discounts to their historic norms, investors everywhere are wondering if this is the new normal or if finance stocks are a screaming buy today. The answer depends on the company, so to help figure out whether JPMorgan is a buy today, check out The Motley Fool's premium research report on the company. Click here now for instant access!

The article This Chart Should Disturb Every American originally appeared on Fool.com.

John Maxfield owns shares of Bank of America. The Motley Fool recommends and owns shares of Wells Fargo. It also owns shares of Bank of America and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners