Are Your Bank Deposits Safe?
Given all the headlines and noise regarding bank failures of late, the San Diego Union-Tribune looks at the question of whether or not depositor dollars are safe.
In an well written, entrepreneurial piece, the paper says that “ninety-nine percent of U.S. banks are classified as ‘well capitalized’ by the FDIC, according to the American Bankers organization. That’s the FDIC’s highest designation of soundness and is based on formulas for how much capital a bank maintains relative to the riskiness of its assets – mostly loans.
“So a bank with a large credit card business, such as Bank of America, must have more capital to be considered well-capitalized than a bank with loans secured by high-quality mortgages, which have collateral and are considered less likely to go poor. Banks must have a total risk-weighted capital ratio of 10 percent or greater to be considered well-capitalized by the FDIC.”
It has several charts which compare failures today by banks and thrift institutions by the number and asset value. According to the charts, the situation was far-worse during the S&L crisis in the late 80s and early 90s.
I’m not certain the comparison is entirely apt. The S&L crisis caused a lot of solid and profitable institutions to fail considering the federal government changed the definition of acceptable capital. One conclusion was that former S&L shareholders sued the government. In UNITED STATES v. WINSTAR CORP. ET AL., the Supreme Court backed
The aftereffect of the Winstar decision was that the federal government paid out huge sums to former S&L shareholders.
In today’s situation, it is not what the government did that led to the current mortgage meltdown, it is what itdid not do: Regulators did not stop lenders from making loans without adequate documentation. They did not stop lenders from making mortgages which were obviously and overtly destined to fail in large numbers.
The San Diego scoop is well done and makes a core point: “depositors have myriad ways to protect their money beyond the $100,000 FDIC insurance limit per individual detail and $250,000 limit for some retirement accounts.
“By opening different types of accounts, among other steps, individual depositors can insure at least $450,000 at one institution, while a couple could insure about $1 million depending on their circumstances, said Greg McBride, senior financial analyst with Bankrate.com.”
For the full story, see: Most banks have cushion of capital
Orginal post by Peter G. Miller
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