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As SportsN pointed out you have a conclusion that you want to reach so therefore the data must support it. One could equally or perhaps even more strongly argue that a higher reserve requirement stems from a higher risk.
As SportsN pointed out you have a conclusion that you want to reach so therefore the data must support it. One could equally or perhaps even more strongly argue that a higher reserve requirement stems from a higher risk.
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True Winter, I had not thought of that, thanks. A requirement for hgher reserves could imply that it's due to higher risks.
But, it's time for my daily nap now. At my age it's a requirement. So can or does anyone else want to give this idea a shot, that of arguing that the insurance industry is safer than the FDIC/banking industry? If not, thanks for the brain cell stimulation.
SportsNut I wasn't trying to use this idea in the form of a sales situation. It was for my own edification. Thanks
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This statement is fundamentally flawed. Until you get past this, you won't realize what you are saying.
The BANK, the actual institution the deposit is in, guarantees the deposit. When you go withdrawal your money, you get it back from the BANK, not the FDIC. The BANK holds reserves to pay your withdrawal. Only in case the bank fails does the FDIC step in with it's guarantee.
In the same way, the insurance company holds your money and guarantees your deposit. If the insurance company fails, the insurance reserves at the state level pays you, to the limits of the guarantee.
There is nothing that keeps an insurance company from failing just the same as there is nothing that stops the bank from failing (except AIG, Citibank, BofA, etc, but we'll ignore that).
The big difference is the FDIC was setup for systemic failures (i.e., the great depression), the insurance guarantee funds was setup for individual companies having a failure and I doubt would survive a systemic failure.
Trying to bash the FDIC in a presentation is a losing play in my book.
Dan
You just dropped a whopper of misunderstanding. You can not compare an insurance company's reserves with that of a banks.
Fractional reserve banking says that a bank has to keep less than 10% of it's assets in reserves.
The FDIC has 20 years to pay claims.
If someone wants to compare the safety of the insurance industry with that of banking? I say go for it.
We'll agree to disagree. It's true bank reserves work differently, simply because the risk is different.
You can't compare the FDIC to any particular insurance company either.
I agree, if someone wants to do the comparison, go ahead and go for it. Just do it honestly. Don't make statements like the FDIC has 20 years to pay claims unless you have an FDIC policy that states that the standard claim may take up to 20 years to pay (doesn't exist).
Dan
You can't compare the FDIC to any particular insurance company either.
I agree, if someone wants to do the comparison, go ahead and go for it. Just do it honestly. Don't make statements like the FDIC has 20 years to pay claims unless you have an FDIC policy that states that the standard claim may take up to 20 years to pay (doesn't exist).
Dan
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Winter, after having time to think about your response yesterday you made the argument that insurance companies are inherently riskier than banks and therefore a higher reserve is required. But, it can also be looked at this way and that is since the ins. industry doesn't have the luxury of having the FDIC standing behind it that as a matter of precaution a conservative approach would be to have higher reserves. In other words if you don't have uncle Sam to save you you'd better save yourself.
I think both views are reasonable actually. It just depends on what appeals more to you as a rationale. Of course, since I'm looking for arguments to buttress my position I'll have to stay with the in. industry being safer.
Dan, I already said this wasn't for a sales situation, but for my own and hopefully the forum's enlightenment. Maybe we sahould have threads that carry ratings like the movies, this thread could be rated, I don't know maybe RSA(Restricted-Senior Agents)
Now, as to your argument that banks are guarantors just as ins. companies I agree with. Without the FDIC banks and ins. companies are sinisterly close in comparing the 2. They would be self guarantors without the FDIC. So, I would call them sub or junior gurantors and the FDIC the Master or Senior Guarantor. And when jr. falls down daddy's there to pick him up and wipe his nose off and give him a nice shiny new quarter to play with(or lose again which is why he went running to daddy in the first place).
The one thing you did mention though is the reason behind there being the FDIC, that of systemic failures. Banks, for the most part, hold liquid capital. Ins. Companies, for the most part, hold illiquid capital for the end users. Banks, by their very nature are in a riskier environment where customers and their emotions wanting access to their monies can cause a run on it in seconds. And if the bank ain't got it it has to call big daddy.
The environment the Ins. Companies work in has more illiquidity built into it becasue the nature of the environment is that of accumulation over a much longer period of time. So the probability of a run occuring is less, although not nil.
But, unless someone can give us some actual data the dollar amount held by the FDIC and the dollar amounts held by the ins. companies i don;t think I can prove it one way or the other. So the first step is to try and find out the numbers, which is where I'm off to now.
Thanks everyone for your contributions. I'm really glad this thread didn't require a bump for lack of interest. So I appreciate everyone taking time out to post their ideas, opinions and positions. It was enlightening to say the least.
Now, go out there and get on those steeds and CHAAAAARGE ! ! !
I think both views are reasonable actually. It just depends on what appeals more to you as a rationale. Of course, since I'm looking for arguments to buttress my position I'll have to stay with the in. industry being safer.
Dan, I already said this wasn't for a sales situation, but for my own and hopefully the forum's enlightenment. Maybe we sahould have threads that carry ratings like the movies, this thread could be rated, I don't know maybe RSA(Restricted-Senior Agents)
Now, as to your argument that banks are guarantors just as ins. companies I agree with. Without the FDIC banks and ins. companies are sinisterly close in comparing the 2. They would be self guarantors without the FDIC. So, I would call them sub or junior gurantors and the FDIC the Master or Senior Guarantor. And when jr. falls down daddy's there to pick him up and wipe his nose off and give him a nice shiny new quarter to play with(or lose again which is why he went running to daddy in the first place).
The one thing you did mention though is the reason behind there being the FDIC, that of systemic failures. Banks, for the most part, hold liquid capital. Ins. Companies, for the most part, hold illiquid capital for the end users. Banks, by their very nature are in a riskier environment where customers and their emotions wanting access to their monies can cause a run on it in seconds. And if the bank ain't got it it has to call big daddy.
The environment the Ins. Companies work in has more illiquidity built into it becasue the nature of the environment is that of accumulation over a much longer period of time. So the probability of a run occuring is less, although not nil.
But, unless someone can give us some actual data the dollar amount held by the FDIC and the dollar amounts held by the ins. companies i don;t think I can prove it one way or the other. So the first step is to try and find out the numbers, which is where I'm off to now.
Thanks everyone for your contributions. I'm really glad this thread didn't require a bump for lack of interest. So I appreciate everyone taking time out to post their ideas, opinions and positions. It was enlightening to say the least.
Now, go out there and get on those steeds and CHAAAAARGE ! ! !
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Well, I have no clue on any of this but I did think of a couple of questions:
- Has any state ever had to payout any guarantee funds due to a failing life insurance company?
- How did the banks compare historically with the life insurance companies during the depression? Would that give us a clue to which is "safer" in the current environment?
I don't know the answers to these questions, so if someone does, it would be interesting to know.
- Has any state ever had to payout any guarantee funds due to a failing life insurance company?
- How did the banks compare historically with the life insurance companies during the depression? Would that give us a clue to which is "safer" in the current environment?
I don't know the answers to these questions, so if someone does, it would be interesting to know.
#1. Not sure, but my guess is not very often. Insurance departments do a remarkable job of rehabilitating or liquidating insurance companies.
#2. Just ask the Babe, if he was alive. He wethered the depression with his riches in tact.
