BANKING
An AP wire story issued last month said, “Regulators on Friday shut down two big California banks as well as banks in Alabama, Florida, Georgia, Michigan and Illinois, bring to 140 the number of U.S. banks brought down this year by the weak economy and mounting loan defaults.”
You don’t have to be a rocket scientist to figure this out folks: in 2005, 0 banks failed; in 2006, 0 banks failed; in 2007, 3 banks failed; in 2008, 25 banks failed and 140 failed in 2009.
Let me be kind, that is an ugly graph and it says something about the banking system. The FDIC is broke – they are going to have to get their “insurance” money from uncle.
Yes, there is coverage for up to $250,000 per account (and sometimes more depending on who’s on the account with you), but if you are in a business where immediate access to your cash flow is critical to your operations, you need to be in a healthy bank. (And if you are carrying balances in excess of $250,000 in one account, shift some of that money elsewhere so that you are covered.
Please check the health of your bank. You can do that at www.bankrate.com. Go to the section on the first page that says “Safe and Sound Ratings.” They have a service there that ranks banks with 1 to 5 stars. If your bank has 4 or 5 stars, you should be fine; if it has 1 or 2 stars, you should move banks. If it has 3 stars, you are in somewhat of a grey zone frankly. You shouldn’t be immediate danger, but keep an eye on the ratings or move.
That’s one way to get an initial overview of the bank’s health. That said, the ratings at bankrate.com just take a snapshot of how the bank looks right now. What it doesn’t do, which is a huge omission, is it doesn’t look at the trend. Is this bank getting better or worse? What condition are they in compared to last year and the year before? Are their delinquent loans growing or getting smaller?
Growing loan delinquencies are important considerations these days and unfortunately the bankrate analysis doesn’t take these factors into consideration. If your bank is a 4 or 5 star bank, it’s probably not a concern, but a 3 star bank with a deteriorating trend is reason to consider moving your money.
If you have a 3 star bank and want a professional look at your bank’s balance sheet (or just want an experienced eye), I do this as a service. As many of you know, I have been a senior credit officer for two banks in California and can take an educated look for you. I charge for this service: $175 per bank and $225 if you also want me to find and recommend an alternative.
I know, it would be nice if I could do it for free, but it takes considerable time for me to do these reviews and then send you my findings.
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Tags: banking
