safety of your bank deposits - from the Sun Sentinel

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South Florida Sun-Sentinel.com
Federal insurance program protects most bank deposits
BY MARCIA HEROUX POUNDS

South Florida Sun-Sentinel

July 20, 2008

A bank failure in California. The federal government's planned bailout of the nation's largest mortgage holders, Fannie Mae and Freddie Mac. The strong possibility that more banks could collapse.

Is your cash safe in the bank? Banking experts say: Don't panic, because most deposits are protected by the full faith of the federal government.

Here are answers to key questions about bank safety:

Q: How do the big banks in South Florida, such as Bank of America and Wachovia, compare with the community banks in terms of risk?

A: The largest banks carry less risk for a depositor or investor because they're too big for the government to let them fail, said Florida banking analyst Ken Thomas.

But size doesn't really matter because your deposits are insured by the Federal Deposit Insurance Corp. If you keep $100,000 or less in your name in any bank, you don't have to worry because that money is insured by the FDIC.

Thomas recommends keeping no more than $95,000 in a bank to allow for interest on your deposits.

Q: How does FDIC protection work?

A: All your deposit accounts worth $100,000 and less in one banking institution are automatically insured by the FDIC. That includes savings, checking and money market accounts and certificates of deposit.

Many retirement accounts, such as IRAs and 401(k)s, are insured to $250,000 per person. There are ways to structure deposits to have more than $100,000 in a bank. In a joint account, for example, each depositor is insured up to $100,000. Your bank can help you with a strategy to ensure your protection. Or for help, go online to www.fdic.gov or call 877-ASK-FDIC (275-3342).

Q: In light of the recent failure of IndyMac Bank in California and the troubles of mortgage giants Fannie Mae and Freddie Mac, should I be wary of my bank?

A: IndyMac bank was "a real high flier," said Miller Couse, chairman of the Florida Banking Association, who says most banks are more diversified in their lending. "It was in all the markets tremendously affected by the housing industry."

IndyMac, like many of the nation's banks, was facing pressures of tighter credit, tumbling home prices and rising foreclosures. In recent weeks it had experienced a run, with depositors pulling out $100 million a day.

The FDIC had no choice but to take over the bank, but like the nation's other FDIC-protected banks, IndyMac's deposits are protected up to $100,000 for each account.

The government's potential buyout of Fannie Mae and Freddie Mac also has led to faltering confidence in the U.S. financial system. The Federal Reserve offered to let the mortgage giants draw emergency loans and the Bush administration asked Congress to temporarily increase the companies' lines of credit. Fed chief Ben Bernanke told Congress last week that Fannie Mae and Freddie Mac, which hold or guarantee more than $5 trillion in mortgages, are in "no danger of failing."

Q: How can I tell how strong my bank is?

A: One way is to check how banks measure up according to two firms that track them.

Banks with two or fewer stars out of a possible five are problematic or troubled, according to BauerFinancial's star ratings. You can check that at BauerFinancial.com. Local two-star banks are: Integrity Bank, Jupiter; Security Bank N.A., Fort Lauderdale; Ocean Bank, Miami; Republic Federal Bank, Miami; and Great Eastern Bank of Florida, Miami. No matter, your deposits in these five banks are protected by the FDIC.

Bankrate.com in North Palm Beach also monitors the financial health of banks.

You also could go to FDIC.gov and look up your bank's percentage of nonperforming loans — those for which customers are at least 90 days late making monthly payments.

"If you have a bank that has tremendous nonperforming loan percentage, spread those deposits around," said Couse, who is also CEO of First Bank in Clewiston.

For example, of total loans at BankAtlantic, one of the largest local banks in South Florida, 1.25 percent of them are non-performing, mostly commercial lending related to the housing industry, said Alan Levan, chairman of BankAtlantic Bancorp.

Levan said stock investment and deposits in a bank are separate issues. "Stock price is of interest to our shareholders, but totally unrelated to what's happening at the bank," he said. On a year-to-date basis, BankAtlantic's stock has declined 59 percent; Friday the stock closed on the New York Stock Exchange at $1.68 a share, up 18 cents.

Thomas said a financial institution with a low-priced stock isn't necessarily a poor place for a deposit. People don't have to worry about buying a CD there because the FDIC is insuring their deposits, he said.

Q: How much insurance does the federal government have nationwide for bank deposits?

A: The FDIC has nearly $53 billion. The estimated loss to the FDIC from IndyMac is between $4 billion and $8 billion.

Q: How often do banks fail?

A: John Bovenzi, the former chief operating officer of the FDIC who now is in charge of IndyMac, said last week that bank failures have been rare, and that if more banks do fail, the government has enough in reserve. There are 90 banks on the problem list, the FDIC has said. The agency doesn't reveal the banks on the list.

IndyMac is the fifth U.S. bank or thrift that has failed this year, according to the FDIC. In 2007, only three financial institutions failed, compared with the 2,808 institutions that failed between 1982 and 1992.

Still, Thomas said "dozens" of banks nationwide could fail or close this year – not hundreds as some fear. More bank failures can be expected this year, but "not any big ones," said Karen Dorway, president and director of research at Coral Gables-based BauerFinancial, which rates the financial health of banks.

This story was supplemented by Sun-Sentinel wire services.

Marcia Heroux Pounds can be reached at mpounds@sun-sentinel.com or 561-243-6650.



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