A 33-year-old mother in Paraguay says she was encouraged to keep her savings at the bank her employer's owners controlled. This week the bank failed. Her $16,000 and her latest paycheck are frozen. Her job is paused for 90 days. "They encouraged us to put our savings there to get benefits," she told the Journal.
The bank is Ueno Bank, Paraguay's fifth-largest by assets. Regulators said its reserves were too thin for the loans it had made. It closed Tuesday, Nov. 3. About $850 million in deposits froze with it. That money is frozen, not lost. Three million clients were left waiting, in a country of 7.1 million people. Depositors marched in the capital, Asunción, and some clashed with police. One lawmaker said a friend who imports cars assumed he'd lost $105,000 on deposit.
A president offers to quit
President Santiago Peña offered to resign Thursday, Nov. 5, as Congress weighed removing him. The Journal reports he indirectly held a large stake in the bank while it grew, including new business managing government pension money. He says he cut ties with the bank and its parent, Grupo Vázquez. The central bank has taken control. Authorities have arrested executives, including the head of the parent group. Prosecutors opened a criminal investigation into Peña on Thursday. Congress was still deciding whether to accept his resignation when the paper went to press.
Now the part that matters for savers. Paraguay set up a fund to protect deposits in 2003. It has never been used. Officials expect it to protect most retail depositors, but the paper notes there are limits to that support. One local financial executive called this the failure of one bank, not a crisis of the system. That may be true. It's little comfort to the 273 employees of a sister company told to stop working for 90 days.
Our read
This is a Consumer Protection story, M11 in our map, and the lesson is where your cash sleeps. Three things went wrong at once for that family. The savings, the paycheck and the job all came from one group of owners. When the group stumbled, all three froze on the same day. Here's the U.S. number to know, and it isn't in the paper. Federal deposit insurance covers $250,000 per depositor, per insured bank, per ownership category. A single account and a joint account count as separate categories, so a couple can have more than that covered at one bank.
Your check this week is a simple one. Add up what you hold at each bank, CDs included, and compare each total to the insurance line. Then look at who pays you. If the people who own your employer also own the bank that holds your savings, keep the emergency fund somewhere else. Treasury bills in a brokerage account belong to you. They aren't a loan to the bank. The time to split the money is while every door is still open. If you're not sure how your accounts are covered, that's a ten-minute item for a planning review.