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What protections exist for fradulent theft of funds from real banks
March 4, 2014 6:18 PM   Subscribe

Spurred by the MtGox implosion thread and by a TV episode in which "real", presumably USD funds in US banks were stolen by an evildoer who illegally transferred the money elsewhere, I am wondering: What protections do US dollars in FDIC-insured US banks have against fraudulent electronic transfers? Would a victim of such a theft be likely to see all, some, or none of the stolen money reimbursed by an insurance policy?
posted by jepler to Law & Government (4 answers total)
 
Something like MtGox in the USA would be more analogous to something like Paypal than a real bank. Paypal is not a bank, so the dollars in your Paypal account are not FDIC-insured.
(In the event of massive theft from a not-a-bank banking-services-entity like Paypal, I assume that whether Paypal's (private?) insurance covers Paypal's loss (and thus allows Paypal to pay you back your money) would depend on the nature of the crime and the nature of their insurance. So I have no idea.)
posted by anonymisc at 6:42 PM on March 4


FDIC insurance isn't designed to protect against things like fraudulent electronic transfers. It's designed to protect customer deposit accounts in the event a bank fails. If you have $25K in an FDIC insured deposit account, and your bank fails, you would be at risk of losing all this money without FDIC insurance.

Before the FDIC, if people heard a bank was not doing well, they would rush to pull their money out. These panics could drive a bank under on the basis of nothing more than a rumor, which was terrible for the economy and people's savings. FDIC insurance is designed to protect the integrity of the financial system by offering a security blanket to customers. You will get your money from your bank account, even if the bank fails, so there's no need to yank it all out at the drop of a hat.

I don't know how banks protect against the losses from fraudulent transactions. I'd speculate that there's a different type of insurance for that.
posted by helloimjohnnycash at 7:07 PM on March 4 [2 favorites]


If a catastrophic event like the Mt. Gox debacle happened to a real bank, the bank would become insolvent and FDIC insurance would cover up to the limit.

If a less catastrophic event happened, like a bank insider draining only your balance, then lawsuits and settlements to recover your funds from the still-solvent bank.
posted by qxntpqbbbqxl at 10:45 PM on March 4


Canadian example, but it seems like after a lot of work and months you can get it back.
posted by carolr at 11:07 AM on March 5


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