Sunday, July 27, 2008

Bank Musical Chairs, and a recommendation (updated 8/1/08)

I'm sure we've all played musical chairs, wherein a group of people walk around a line of chairs while the music plays. When the music stops, each person sits down on the nearest chair. The trick is there is one less chair than the number of people. That last person, the chairless one, is now out of the game.

I don't know what kind of a coma I was in Friday night, but I didn't hear the news of two more banks failing until Saturday. As I was watching C-Span, someone asked Senator Dodd a question about the "two banks that failed Friday night". I sat bolt upright, and flew into my home office to check it out!

Since the FDIC does not publish their so-called "Troubled Bank List" (which has grown to 90 so far this year), customers do not find out if their bank is in trouble until it has actually failed (meaning federal regulators have seized their assets & closed the bank). A quick check of the FDIC.gov confirmed the worst of my suspicions ... I have money in one of the failed banks!

There was a bit of panic (I was literally shaking) as I read through my options. Turns out for me, it's not too bad because: 1) these failed banks were sold to Mutual of Omaha Bank (they got into the banking business in 2007), and 2) my deposit does not exceed FDIC limits. But the specter of suddenly losing my own money, money that I put in a bank because I did not want or could not afford to risk it in the stock market or other investments, could have been disastrous! None of these entities are publically traded, so most depositors would not have known what was afoot beforehand.

Even though FDIC will not publish their "Troubled Bank List", they do list websites of private companies that rate safety and soundness of banking institutions. I STRONGLY recommend that you look at your bank's rating IMMEDIATELY! If I had been keeping closer track of my banks, I would not now be scrambling to make phone calls Monday morning attempting to waive withdrawal penalties so I can transfer MY OWN money into another bank. Don't forget to verify all your banks, even trustees of your retirement accounts (like IRA's).

The bank rating site I found easiest to use is Bankrate.com. They rate banks from 1 to 5 stars. A 3-star rating is "satisfactory". If your bank falls below 3-stars, it is in trouble. You can easily check your bank by name or state or zipcode. If you are looking for a good bank, you can select 4-star or 5-star rated banks in your state. I had gotten lax in looking up this critical information for banks I do business with, thinking a twice yearly check was good enough. WRONG! I will now be checking weekly! I recall that First National Bank of Nevada had fallen to 2-stars in June. I thought that was just a reflection of the poor Nevada economy. It did not occur to me that the bank was in trouble. As of today, it is rated 1-star (failed).

So .... yes, Mutual of Omaha Bank will assume the $3 billion in deposits of First National Bank (of Nevada, Las Vegas and Reno, and of Arizona, Phoenix and Scottsdale) and its affiliate, First Heritage Bank of Newport Beach CA. Characterized as "critically undercapitalized", these two banks had total assets of $3.5billion, but only about $3billion in deposits. Putting these two banks into federal receivership is costing $862million of the FDIC insurance fund. Mutual of Omaha will profit by this deal because: 1) they can now expand into NV, AZ & CA, 2) their bank will be greatly increased in size since they only had $750million in assets prior to this deal, and 3) the FDIC made them an offer they couldn't refuse (namely, some of the $862million the FDIC says this deal is costing will result in Mutual of Omaha having received assets for less than than they were listed on the day before federal regulators stepped in).

By contrast, the failure of IndyMac earlier this month is expected to deplete the FDIC insurance fund by $4billion to $8billion. The FDIC reserve is currently estimated to be $53Billion for apprx 8500 FDIC-insured institutions. Does anyone else smell a rat if there are too many more bank failures? How quickly can that $53billion be used up? What will happen to the first bank that fails after the fund is depleted? I'm picturing the banks slowly circling those musical chairs, shuffling zombie-like as the music drones on. Which bank will fail to find a chair after the music stops? What will happen to deposits of customers of that bank? This is why I say you should move your money if your bank falls below a 3-star bank rating!

And a final observation: these latest two failings make a total of seven FDIC-insured banks having been shut down so far this year. It's becoming somewhat of a Bush family tradition. There haven't been this many bank failures since Bush's dad was in office. Remember all the S&L's that collapsed from fraud and money laundering during Bush 41? I'm sure John McCain & Charles Keating (Lincoln S&L) remember them well. And don't forget the Silverado S&L collapse, starring George's brother, Neil Bush. It's kind of in their blood ... and once they smell blood, these guys usually go for the jugular.

**********Update 8/01/08: Another Friday ... another failed bank. This time it is First Priority Bank of Florida, closed by federal regulators late Friday so customers can spend the weekend worrying. FDIC agreed to let SunTrust Bank of Georgia assume the FDIC-insured deposits. But there is a twist this time for deposits which exceeded FDIC limits. FDIC will pay 50% of the uninsured amounts directly to depositors. This is getting scary.

**********Update 8/02/08: FDIC has just released a list of banks that they issued "final order enforcement actions" to in June. These orders are generally given prior to a "cease and desist". You should inspect this list closely. If your bank is one of these 28 banks, you may want to consider changing banks. It is the first hint of which banks might be on the infamous "Troubled Bank List" (rumored to number 90 banks) that the FDIC has said they will never publish.

18 comments:

D.K. Raed said...

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FDIC insurance is $100K per depositor for most bank accounts, $250K per retirement bank account, at any one institution.

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If you can't find a rating for a particular bank, check to see if it has been recently merged with another bank. That happened to one of my banks in the last few months. Naturally, I panicked when I couldn't find it listed anywhere!

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enigma4ever said...

This is really really helpful...I will add it to my weekend post...thank you for doing all that research...

Also CNN kept talking about EDIE.com ? as a site to check your bank...

NOW about you...I am so sorry that you found out like this..to be honest it was NOT on the EVE news Friday and it did not "make" the news until very late Friday there is no way you would have known....
( funny...in the old days the Bank would have notified you...)

enigma4ever said...

btw...have you or anyone else noticed there are not bank ads anymore- remember there used to be ads for banks on TV- you know the free toaster etc...

D.K. Raed said...

Enigma:
I would NEVER use EDIE! It is the FDIC's Electronic Deposit Insurance Estimator. They say the purpose is so you can tell if you have exceeded FDIC limits. But they ask for too much personal info ........ Example::: "Getting Started with EDIE: Before you begin, be sure that you have assembled the following current information about all of your deposit accounts at an FDIC-Insured Institution: Account Balance, Name of Owner(s), and Name of Beneficiary(ies) for Personal Accounts and Account Balance ... " ... Hey, NO way am I going to submit that info to the FDIC. Especially when you can easily calculate it for youself, using their limit guidelines that I linked. EDIE in NO WAY rates banks or signifies if they are "troubled", so if CNN implied that, they are wrong. Plus they leave it up to YOU to decide if your account at your bank is FDIC insured (many banks push non-FDIC insured instruments in addition to regular FDIC insured accounts ... even a careful depositor might not have noticed that little bank caveat). All EDIE does is calculate if you have exceeded the FDIC limit at any one bank & what your total uninsured exposure is.

D.K. Raed said...

Enigma:
Well *I* certainly missed it Friday night ... almost gave me a heart attack Saturday! On local Las Vegas news Saturday, they had coverage of people showing up at branches of First National Bank of Nevada late Friday afternoon, only to see they were closed. The customers actually thought, OH the bank just closed a little before 5 PM. The newspeople had to point out, noooo, they have closed for good. They will re-open Monday with a temporary vinyl banner hung over their name, saying something like, "Welcome to MUTUAL OF OMAHA BANK". I wonder how many of their customers are even seeing the news this weekend. Monday may see more people panicking in NV & AZ.

Re: Bank Ads ... long after the subprime debacle began, I was still seeing the Countrywide dickheads hocking themselves on cable news ads. Disgusting. But not many other bank ads ... EXCEPT for a local 5-star bank. They are advertising their strength & security & inviting people to move their funds there. No toasters, just safety. Sounds pretty good to me right now.

an average patriot said...

Red
You know how I feel so I will say good for you and just shut up after i just ask if you have seen the BS bill raising our debt ceiling to $10.6 trillion not to help the people as they say but it bails out the institutions again that is why he will sign it

D.K. Raed said...

Avg Pat:
$10.6 TRILLION -- the first time our national debt will reach 14-figures! Of course, Bush will sign it, he loves running up the national debt, it's one of his specialties! Actually, I'm having trouble analyzing that bill. All I know is when I read that Henry Paulson says the bill only "authorizes" that much an increase in the national debt, but that he hopes not to have to use it ... well, we are in neck-deep BS territory. I do notice it sunsets 12/31/09.

dada said...

I'm not too worried. I mean, if the FDIC insurance fund dries up after a few more bank failures, Bush'll just go to congress and, with the help of Pelosi and Reid working closely with those republican controlled bodies (I know, I'm prone to hyperbole for majorities with no juevos), they'll simply pass another $165 Billion, $257 Billion, or whatever Bush asks for to save the banks the economy, right?

But all seriousness aside d.k., thanks for this. I tend to get lax about keeping tabs on $$$ tied up in long term CD's from the Carter days still earning 16.75% interest (see? I told you about hyperbole) that I don't bother to check on the institution(s) holding our money.

Checked two of three of those. One was a "3", the other a "5". (I'll keep better tabs now, thanks to you.) Good post!

D.K. Raed said...

Dada:
I'm thinking one thing they might do is increase the FDIC % charged to each bank in order to increase the reserve. Right now it is .3% of bank assets. Of course, if they mandate an increase, the banks will further reduce CD rates on our deposits. Can they go much lower? Can you tell I am lusting after the 16% interest rate you mentioned from the Carter days? One thing is for sure, no matter how the situation is resolved, it will be on the backs of middle & lower income americans. The Bush-Cheney class will skate, having already secreted vast sums in offshore banks.

Hey that's good news about your bank's ratings! I'm glad this info was of some use. I just kept thinking, we are really on our own, and if I could help anyone else avoid the near heart attack I had Saturday, I should.

dada said...

Well, yeh, thanks again, D.K. I know how I can tend to let things like this slide -- to just keep the blinders on and hope in those banks we hear of that are failing, none is one of ours. But dropping by here made it easy to check up on the health of the bank(s). No excuses, right? So, much appreciated.

And while here, let me add my congratulations at having come thru your bank failure unscathed. Maybe that's the way to do it, huh? Do it early, get it over with. Avoid the long waits in long lines.

(Or worse, risk of getting trampled in the stampede to get in through the bank doors before they lock 'em forever.)

I don't know if the gov't will increase the deposit insurance premiums, further stressing the banks who will further stress customers. Maybe the government will just not worry about it, like everything else, and if worse comes to worse and the kitty runs a few hundred $billion, of $trillion or two short, they can just print more money, huh?

Mary said...

This was a great post DK. Everyone needs to have their eyes open. I called my brother who is in banking and he says it doesn't matter what a banks rating is. They can go under suddenly and quickly. So keep those accounts under the 100,000 mark. Which won't be hard for me.

Border Explorer said...

This post put the WISDOM of Redheaded Wisdom in all caps. Thanks very much from someone who knew not a thing about any of this. It's great to have you as a friend, D.K. Now I'm off to check on my bank.

DivaJood said...

See, when I am President, I will encourage everyone to put all their money in shoe boxes.

eProf2 said...

Thanks, DK, for the informative post. I checked out the two credit unions I belong to and they're both 5 stars, thankfully. I don't do banks as they work for the stock holder; I do credit unions who work for the members. Yes, Dada, socialism in action!

D.K. Raed said...

Dada:
well, we HOPE we are unscathed by this one. I won't truly believe it until we have successfully cashed out. and then hope where the cash lands doesn't also fail, ending up on a trail that eventually leads to total FDIC depletion ... or as you say, perhaps we'll be paid all of our OWN money, but in worthless recently printed fed dollars, which we can wheelbarrow over to walmart & buy a loaf of bread with!

Mary:
aaaacccckkkk ... just as I was feeling like I had a grip on things! and here, I was feeling pretty good about a 4 or 5-star bank, which your bro points out can still fail "suddenly & quickly" .... which somehow reminds me of the great Wm Butler Yeats poem line "things fall apart; the center does not hold".

D.K. Raed said...

B. Explorer:
it was Enigma who named my blog. I might've been more inclined to call it "redheaded idiocy" or somesuch. She kept insisting if I had a blog, I'd find things to say on it. Very sly of her to use the word "wisdom" to keep my silliness at a minimum (grin)! Hope your bank checked out OK.

DivaJood:
Hah! I am waaay behind in your preznilent campaign. I will try to catch up tomorrow. I might need to put some expendables in those shoe boxes. If we can print up some more cash, perhaps cash itself will become an expendable.

EProf:
you remind me, I've been meaning to check the ratings on some of our local credit unions & see how they are doing. Yours sound like they are doing fine. generally speaking, UTAH banks tend to be higher rated than many states.

Fran said...

If the economy in America is child's play, musical chairs might turn to a different game~

Ring Around the Rosey, Pocket full of Posey ~ Ashes Ashes we all fall down, ~ very quickly.

My only saving grace is I don't have much of the green stuff banked away anyway.

Banking reality is turning into a Stephen King version of It's a Wonderful Life. Potterville here we come!

D.K. Raed said...

Fran:
As long as FDIC reserves are flush, those who have the least bank money will be fine. Sadly, when (if) the reserves run dry, those who have the least will suffer the most. Afterall, who is hurt more by losing some of their savings, no matter how meager? Ashes, Ashes ... perfect!

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brief update: taking money out of our failed bank is not as easy as the FDIC would have us believe. I've been getting a bit of a run around all week. After trying 2 different ways (a direct bank wire and/or a bank-to-bank transfer, both recommended by the FDIC, both dishonored by the failed bank), finally, today, after arguing with them about my unwillingness to drive 300-miles in order to conduct a withdrawal "in person", they have agreed to process a written request. While I'm happy for that (although I will not believe it until I see it), I don't think the banks involved or the FDIC should be adding to people's angst by making it so difficult to access YOUR OWN MONEY!
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