Bank failures lack the sex and glamour of Hollywood stars and their antics, but they sure have a significant impact on your pocket book. The rate of 2009 bank failures is alarming. Do you know how to protect yourself?
25 Bank Failures in 2008
According to the Sun’s Financial Diary, only 25 banks failed in 2008. The most significant 2008 bank failure was Washington Mutual, with $307 billion in assets, while IndyMac with $30.7 billion was second. Further down the line was Downey Savings & Loan with $12.8 billion in assets, as reported by CNN.
81 Bank Failures as of August, 2009
Fast forwarding to 2009, the list of bank failures has already exceeded the 2008 tally. As of August, the FDIC reports a grand total of 81 bank failures in the United States, and the trend is likely to continue.
Referring back to the list of most significant bank failures by CNN, this year’s list is topped by Colonial Banc Group with $25.5 billion in assets, Bank United with $13.7 billion, and Guaranty Financial with $13 billion.
Who is to Blame for Bank Failures?
Skyrocketing unemployment in some areas of the nation is undoubtedly to blame for the failure of some of the banks. With unemployment come foreclosures and credit card loan defaults. When these credit products fail to yield a profit to the lender, reserves are eventually depleted and new depositors can no longer carry the fiscal weight of the bank.
In the case of Guaranty Bank, CNN suggests that it was its venture into California mortgage lending that led to its demise. Ground zero for home loan foreclosures, Guaranty held a disproportionately large number of problem mortgages, which became a liability during the housing crash in California. In addition to its adjustable rate loans, the bank also loaned funds to California homebuilders, an industry that is barely hanging on in the state.
What about Credit Unions?
Credit Unions are – thus far – marginally saver. The Sun Financial Diary reports that in 2008 14 credit unions failed, while thus far in 2009 seven credit unions have already failed, according to Bank Info Security.
How to Protect Yourself from the Fiscal Impact from a Bank Failure
Place your money only in FDIC insured deposit accounts. They include savings and checking accounts, money market deposit accounts, certificates of deposit, and also NOW accounts. Do not place more than $250,000 into any one deposit account, and do not spread identical accounts over various branches. For example, if you have checking accounts at each of XYZ bank’s 50 branches, you are still only insured up to $250,000. However, if you hold a CD and a checking account, the insurance doubles.
Keep in mind that this ruling is slated to end on 12-31-09, when the FDIC’s temporary transaction account guarantee program of 10-14-08 reverses. Moreover, the $250,000 insured funds maximum will go back to $100,000 on 01-01-14.