Finance and Economics > Investing and Saving

Is your bank or insurerer on these lists?

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Emily:
To the OP:  what is your opinion of the reliability of bankrate.com?

viking:

--- Quote from: shadowalker on October 05, 2009, 12:01:44 PM ---If so you may need to better protect your financial life. I know we have a financial section but for me my financial health is a critical aspect of my Emergency Preparations. Mods.. if you want to move this post that's fine by me. May we also consider making it an easy to find sticky somewhere and I'll try to update the list or links every 3-4 months...

Banks & Thrifts Graded D+ or worse (does not include Credit Unions):

http://www.moneyandmarkets.com/files/documents/X-List.htm#Toc211675100


Insurers Rated D+ or lower:

http://www.moneyandmarkets.com/files/documents/X-List.htm#Toc211675104

I'll endevor to keep these links updated once a quarter.

If this topic's been covered. My apologies. Last week I changed banks because of these ratings. I used to check on my bank's rating every year or so but let it slip.. Guess i need to be a little more on the ball about those check-ups. Most banks and insurers that fail were known to be in poor shape (D or worse) long before there failure. I am not predicting any given failure, just advising that these institutions are showing the preliminary signs of failure. Are you one of their customers?

Regards,
Shadowalker

--- End quote ---


Thanks for the Post, COOL AVITAR!

preparenow:
Thanks for the info guys. I checked my bank, and they're rated really low! They'll be losing my funds tomorrow!!

daveinmichigan:
I keep getting the Weiss login screen.

AL13NS:
So this will be my first post...

Lets start with how these on line websites determine their ratings for financial institutions.

Banks are required to submit a Consolidated Reports of Condition and Income (Call Report) on a quarterly basis to the Federal Financial Institutions Examination Council (FFIEC), and this report is aggregated to the Uniform Bank Performance Report (UBPR).  These reports are publically available, but can be difficult to make an assessment of the overall health of the institutions by themselves.  However, there is some validity to their ratings. 

Now lets mention the two ways banks will be put into receivership; lack of capital and liquidity.  As mentioned by Fyrekat, the Texas Ratio measures nonperforming assets to equity capital.  With out going into to much accounting terminology, when nonperforming assets are "written off" the balance sheet it goes through an allowance.  If it exceeds that allowance it is a direct hit to capital.  Banks are required to maintain a minimum level of capital in order to be considered "well-capitalized", and if banks drop below there can be devastating repercussions. Lending banks will no longer lend the institution money, and this is were you get a liquidity crisis because they cannot meet their daily cash needs. Liquidity crisis is rare, and is usually the result of deteriorating capital levels. Depending on the state or regulatory body, there is an established level of capital that if a bank falls below their is a legal obligation for them to be put into receivership.

The thing that these rating systems do not take into account, is the ability of management to effectively manage their problem assets and the ability that the bank has to raise capital.  Capital is raised to grow assets and, or recently, to cover losses.  Their are a variety of ways a bank can raise capital, and most banks failed because they lacked the capacity to raise capital in a timely manner.

Now you may have noticed that I have emphasised banks being placed into receivership rather then using the term failed.  They mean the same thing, but your individual bank account is insured by the FDIC for up to $250,000. Depending on the types of accounts you possess can even be insured for more. If you are considered a "sophisticated depositor" you should not place your wealth above your applicable insurance limit.  Currently, the FDIC has never failed to pay a depositor at a failed institution their fully insured deposits.  A bank will typically close on a Friday with a purchasing bank ready to reopen their branches on Monday.

Being a long time listener, over three years, I agree it is crucial to keep your wealth "well diversified." You should not put yourself in a situation that if you lost availability to your funds in any particular bank, or all banks for that matter, that you would not be able to provide for yourself and your family.  However, I would not concern myself with the small chance that the institution that I bank with may fail.

Your choice is to bank with a national or a community bank. My perspective is that community banks are intirely that; community banks.  They loan your funds locally and help support your community. They often have better customer service and are willing to work with you if you run into hard times financially.  They are not able to compete with the most compete rates for deposits and loans, and your should not expect them too. 

Given my limited experience with Credit Unions I will not talk on them, but they are also insured by the NCUA. 

Each state has their own local laws for how banks and credit unions operate.  They can be regulated by multiple bodies; state regulators, FDIC, FRB, NCUA, and OCC to name a few.  If you want more information regarding insurance or choosing a bank you can visit their websites or look at the CFPB.

Hope this was helpful..

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