On August 3, 2008, Reuters reported that Nouriel Roubini, “influential economist and New York University professor,” said that hundreds of banks will go under during the next 18 months or so. According to a recent article by James Quinn, the FDIC has 90 banks on its watch list, though it may be worthwhile to note that IndyMac, the largest bank failure in American history, was not on their list prior to its failure. Quinn cites data from “an independent analysis by Chris Whalen from Institutional Risk Analytics,” suggesting that the number of “troubled” banks is closer to about 700. Quinn also notes that of the more than $6 trillion in bank deposits, almost $2.5 trillion of those deposits are uninsured.  With numbers like those, it is perfectly reasonable for the average consumer to be concerned about the safety of their own bank.


While the turmoil in the banking system is well out of the control of the average consumer – and, at this point, many point out, out of the control of the bankers themselves and the government regulators – consumers can take steps to make sure that their banking is as secure as possible. Most of the economic signs indicate that times will be troubled at least through the next couple of years, making it worth the time and effort to take a proactive stance in the protection of financial assets, particularly those that are currently involved in the banking system.


Choose Your Bank Wisely


Most people acknowledge that spending time on research and comparison is wise when making a large purchase or entering into a business arrangement. However, all too many of us fail to apply the same degree of effort to choosing a bank. In today’s economic circumstances, with the turmoil in the financial industries, there is much more to choosing a bank than great locations, convenient hours, competitive fees, and all of those other consumer perks that catch our attention. The savvy depositor scrutinizes the overall health and well being of the banking institution he or she is considering.


The FDIC maintains a list of banks that are struggling. That list, however, is not made available to the public. Those in support of that policy cite that making that knowledge available to consumers could result in bank runs or in banks being driven further into trouble by consumers being afraid to do business with them. Consumers can, however, find out enough information to decrease their risk of becoming involved with a bank struggling to avoid failure.


With the huge losses and other problems that the national and international banks are enduring today, many find regional or local banks to have the potential to be safer – at least those that stuck with more traditional loan styles and stayed away from the creative financing and loose lending that characterized the era leading up to the current problems in the banking system. Local and regional banks also have the advantage of being easier to check out thoroughly.


Either via the Internet or simply by asking bank management, you can view the financial statements presented to investors, find out what percentage of their deposits stay in the community or region, as opposed to the amount that is shifted into the broader fiscal arenas, and find out what banks they do business with. You can learn about the ratio of loans to deposits, what the primary profits of the bank rests upon, and to what degree the bank is involved in the riskier finance industry practices – i.e., how much sub-prime lending they’ve been a part of or whether or not they have significant sums tied up in derivatives and securities. This is the sort of information with to choose a bank today because it can help you to select a bank that is more likely to be able to weather the fiscal storms that most industry leaders acknowledge as being a part of the current economic climate.


Consider Your Deposit Strategy


Having a deposit strategy can help you to avoid loss in the event of a bank failure. The first thing to do is to be sure that your bank is FDIC insured, which will protect up to $100,000 per individual account. Understand that if you have more than $100,000 in a given account, you stand the chance of losing that money or having it tied up for years, only to get back cents on the dollar.


Therefore, people are starting to hold multiple accounts at multiple banks, ensuring that all of their money is insured against being caught up and lost during a bank failure. Some depositors are using that strategy even if they don’t have that much money, simply because that old adage of not having all ones eggs in a single basket makes good sense during financially uncertain times.


Taking the time and spending the effort to research the health and well-being of your bank can provide valuable information concerning the stability of that particular financial institution, something that just may save you a great deal in the end. Being aware of the safety of your deposits and having a plan for increasing that safety is simply a smart move. While taking such steps cannot fully protect you from loss, they can certainly help to reduce the chance of a bank failure having a serious affect on your financial assets.


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