Nevada’s Silver State Bank became the 11th bank to fail this year. The Federal Deposit Insurance Corp. transferred most of Silver State’s deposits to Nevada State Bank, a unit of Zions Bancorp, a Salt Lake City bank with $55 billion assets. Silver State Bank had $2 billion in assets and $1.7 billion in deposits as of June 30.
This bank failure was on the heels of the demise of Integrity Bank of Alpharetta, Ga., leaving many to wonder about the security of their own banks and bank accounts.
Regions Bank of Birmingham, Ala. assumed $34.4 million of Integrity Bank’s $1.1 billion assets. The bank, which has $974 million in insured and uninsured deposits in 23,000 accounts, fell due to real-estate lending woes.
In July, California-based mortgage lender IndyMac Bancorp Inc., with $32 billion in assets, became the largest thrift to fail in U.S. history. Columbian Bank was the first bank to fail in Kansas since 1993. The list goes on and on. And, according to the FDIC, the number of troubled U.S. banks jumped from 90 to 117, the highest level in nearly five years.
It seems like every month a bank closure is being announced, most stemming from the housing and mortgage crisis. So how do you protect your accounts?
Be proactive by checking out your financial institution, says FDIC spokesperson LaJuan Williams-Dickerson. The FDIC’s Website has financial reports from every FDIC-insured institution. The agency insures deposits less than $100,000. FDIC insurance doesn’t, however, cover annuities, bonds, life insurance policies, mutual funds or stocks. Some retirement accounts, such as IRAs and 401(k)s, are insured to $250,000 per person.
You can also research the financial stability of your bank through various independent companies, most for a small fee. Among them are: Veribank, Bauerfinancial.com, AM Best, and Creativeinvest.com. Bankrate.com has a rating system that consumers can access for free. The data used to compile the ratings come from the quarterly call report filings of institutions, and each rating is based on an institution’s capitalization, asset quality, earnings, and liquidity,” says Bankrate’s senior financial analyst Greg McBride.
To check into the financial stability of your credit union, visit the National Credit Union Administration’s Website. “The
NCUA Website provides information for Credit Union members and share insurance, explains how your accounts are federally insured, and the coverage,” says Washington-based financial consultant Christine Holmes-Mason.What indicators trigger signs of an impending closure? One sign that a bank is on the verge of going under is poor ratings from a rating agency or analyst. But according to small business banking consultant Curtis Gregory, president of CJG Management Concepts L.L.C., “That’s a tough question and I’m sure there are many analysts that can fill up pages with information on this subject matter. In my opinion it is better to divert that energy around understanding your rights as a consumer, how you are protected, and what to do, as opposed to trying to project the next bank failure.”
If your bank does fail, and you have less than $100,000 in a deposit account, “there is nothing to do,” Williams-Dickerson says. “The deposit will be assumed by another institution. As long as you are within the FDIC insurance limits…your money is fully protected. In the overwhelming majority of failures, the FDIC is able to find another bank to step in and take over the operations. In those cases, consumers have full access to their insured money the next business day. If the FDIC is unable to find a buyer, within 48 hours checks will be mailed out to customers for the insured amount of their deposits.”
If there is more than $100,000 in an account, a customer should contact the FDIC at the unique toll-free number provided for each failure, or they can log onto the FDIC Website the Monday following the failure. The FDIC’s Electronic Deposit Insurance Estimator (EDIE) can help customers determine whether or not their funds are fully covered.
The FDIC is also responsible for settling uninsured deposit accounts with the failed bank. If the failed bank is acquired by another bank, then I would direct you to the takeover bank, Gregory advises.
“Deposits in excess of the FDIC limit are unlikely to be fully recouped. Investors become creditors of the corporation and they may receive payouts as assets are liquidated,” says Bankrate’s McBride.
You can also protect yourself by structuring your accounts,
says Williams-Dickerson. “Structure accounts to maximize coverage,” she says. If you have more than $100,000 at any one depository institution, the FDIC recommends using EDIE to help determine whether or not their funds are fully covered.” Another option is to have accounts at multiple banks. Deposit-placement services, known as Certificate of Deposit Account Registry Services, can help consumers and businesses put money in multiple institutions through one bank, all the while just getting one monthly bank statement.National Small Business Association board chair, Marilyn Landis, advises “Be sure you have online service for all your accounts with your bank. If you get notice that your bank has suddenly closed, you can go online to determine the current status of all your accounts on that day — balances at that moment, checks still outstanding, etc. In most cases another bank will pick up your accounts — in the interim you will want to know which vendors to contact to avoid payment questions and you will want a record to use to be sure the new bank correctly records your accounts.”