Many Massachusetts-based banks now offer competitive online savings accounts. Can depositors rely on the Commonwealth's Depositors Insurance Fund and deposit amounts over FDIC limits in these banks?
The Depositors Insurance Fund (DIF) was created in 1934 and, while independently operated, is monitored by the Massachusetts Division of Banks. It protects all deposit accounts (savings accounts, money markets and CDs) from individuals and corporations to $1 million dollars (or four times above and beyond the current FDIC insurance). For many years, DIF included all Massachusetts licensed banks as members, but there are banks licensed in Massachusetts that are not members. Radius Bank was never a DIF member (and LendingClub which acquired Radius Bank is not a member). Rockland Trust is not a member (and has acquired East Boston Savings Bank in November 2021 so deposits there are no longer covered). Cambridge Savings Bank, which owns Ivy Bank, also announced its intention to withdraw from DIF in 2021. Therefore, you should not assume that because a bank in licensed in Massachusetts that it is a DIF member. Rather, you should always look for the DIF logo next to the FDIC logo. If there is any uncertainty, you should check the DIF's member listing here.
DIF has approximately $500 million in assets. During the recession of the early 1990s, the worst financial period in the history of the Massachusetts savings bank industry, DIF paid out more than $50 million to protect over 6,500 depositors in 19 failed member banks. During the 2008 to 2011 banking crises, the DIF was not affected by the spate of bank failures as none of its members were among those banks that either failed or were seized by the FDIC. Funds in the Massachusetts DIF are highly regulated today by the Massachusetts Division of Banks, and the fund again has significant reserves on hand to cover failures of member banks.
In recent years, we have seen competitive online rates from at least four online banks that are owned by DIF member banks (BankFive Connect, Salem Five Connect, Norwood Bank, MutualOne Bank). Assuming the DIF website is correct that all depositors are covered regardless of their state of residency, a depositor who might otherwise be inclined to keep online savings accounts below the FDIC’s individual $250,000 insurance limit could now be covered for deposits up to $1 million in an online account with one of those banks.
It however should be noted that some Massachusetts-based banks have had some customer service problems in the past, and they may not provide online banking interfaces or customer services comparable to Ally or Marcus. Salem Five Direct has bank fees that are excessive for online savings accounts and make it a less than desirable place to put cash that may be needed quickly and/or often. BankFive Connect has a website with nice pictures but relatively sophomoric customer service.
Depositors for whom FDIC limits are not an issue may find that it makes more sense to stick with well-recognized online banks and their superior customer services. Even many depositors with $2 million or so to deposit in online savings accounts may find that they can achieve their goals and stay within FDIC limits by distributing their money among several banks with outstanding customer service. However, depositors seeking to hold significantly larger amounts in online savings and money market accounts may find the protection they require from Massachusetts’ DIF insurance and deposit amounts above FDIC limits in one or more of these Massachusetts-based online savings and money market accounts.
I’ve previously espoused the belief that banks need to be given time to formulate a response to the current climate crisis. After COP26 in Glasgow, it is clear that the costs of wind and solar are falling and production advances in both are happening so quickly, I no longer believe that banks need to be extended the benefit of an extended period to outline their climate practices.
But, this opens up a new reality. A quick transition to an electric economy dependent primarily on wind and solar may result in the rapid abandonment of oil, gas and coal-based generation. We may quickly reach a point where environmental events become so extreme that abandonment of these assets could be required by local or federal authorities. Even without government action, these assets might well be rendered obsolete due to costs of operation, and closed due to adverse public relations of continued operations.
I have many friends in credit departments of the major banks on Wall Street who privately confide that their banks have not performed any sort of sensitivity analysis to reflect the possible implications of default of their fossil fuel creditors or projects. Some of these banks have such extensive loan networks that they cannot even begin to analyze which creditors are fossil fuel creditors and which projects could be jeopardized by the climate crisis or when.
I had believed that while the Federal Reserve has lagged in requiring US banks to analyze this information, we should be able to get some insight and direction from Europe where the European Central Bank (ECB) is several years ahead of the US in analyzing and adjusting to climate exposure. Unfortunately, the news from Europe is not good. The ECB reported this week that of 112 European banks analyzed, not one is fully prepared for the possibility of stranded or abandoned assets. Even today, according to the report, only 28% of the banks surveyed are fully modeling environmental or climate change risks when evaluating a debtor’s credit profile.
At the same time, an article that I found on the ECB report suggests that banks’ credit is much more exposed to a fully functioning ecosystem and cites a French study showing that 42% of security in the French banking system is exposed to the ecosystem.
I think we can boil this down to some very unsettling facts regarding the banking system. First, we are going to get very little information from banks on their exposure to fossil fuels companies; it may take years for the largest banks to begin to quantify their risk internally. Second, the climate crisis poses a systemic risk to the banking system. It is very clear that the entire banking system – and not just the largest banks -- is extremely exposed to the fossil fuels industry and corollary industries (as well as to the nuclear industry), all of which may be forced into obsolescence prior to maturity or even significant loan amortization. Third, banks are equally exposed to disruption and dysfunction in the environment, and they cannot drag their feet in the funding of new solar and wind projects. They should be leading the way on this transition as a failure of the ecosystem would be even more costly for them (and the Earth writ large) than writing off their fossil assets.
Author:Ari Socolow
on October 4, 2021
- modified on November 27, 2021
It is pretty clear at this stage that those of us alive today and our children, grandchildren and their descendants are facing a climate crisis unlike anything the inhabitants of Earth have ever faced. It is also very clear that this crisis largely emanates from our addiction to fossil fuel over the last half century.
As we begin to grapple with the challenges we face, there is an increasing desire to blame the major money center banks for their continued funding of fossil fuels. In fact, if you drive down the west side of Manhattan you will see advertisements for a smart-up mobile app that will keep deposits away from fossil fuels (and but pay a rate below leading online savings rates).
We have all made mistakes in our reliance on fossil fuels in the past. That includes the banks. I myself worked for major European banks that were funding BP and Royal Dutch Shell’s exploration around the world. I also practiced law in Russia where I advised Exxon on Sakhalin 1. If I had understood the consequences of those operations, I would have refused to do the work, and that is true of everybody who I worked with. We are all guilty of recognizing the crisis much too late. The banks too.
But, our path to transitioning out of fossil fuels to renewable energy is also going to rely on established banking systems. There is such an extraordinary amount of investment that is going to need to made immediately to effect this transition that there simply is no other source that can lead in this arena.
I performed a little bit of research recently to learn more about the progress that major global banks are making in their lending to renewable projects worldwide. I came across multiple reports on the banking industry’s current loans to the fossil fuels industry. These reports all slam JP Morgan Chase, which is now the largest bank in the US and hence the largest covered by BestCashCow, for its outsized and outstanding loans to companies like Chevron and Exxon without, at the same time, recognizing the history of these loans (i.e., when these loans were placed). None of these reports asks whether the bank can even divest itself of these loans. One report (Banking on Climate Chaos by the Rainforest Action Network) goes so far as to attack Chase for lending to Iberdrola, Orsted and Siemens Energy. Iberdrola and Orsted, of course, are now the largest offshore wind operators in the world and will be vital in the US’s efforts to transition away from fossils. Siemens Energy, likewise, is a manufacturer of solutions relating to wind, solar and energy storage and transmission. Quite simply, it would be irresponsible for Chase not to be increasing its lending to these three companies right now.
The point is simple. We need leadership from the banks on the climate crisis. Rather than rushing to judgment, we need to give them the opportunity to outline their actions and their forward plans to address the climate crisis. Banks are now free to outline their policies on BestCashCow for their customers and potential customers. Read what they have to say on their bank pages on this site or ask them directly for their policy, if they haven’t outlined it. Examine their actions critically, looking at the investment to renewable companies as well as fossil fuel companies. And, only then should we hold them to account.
