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How To Protect Yourself From Bank Failures – What To Ask Your Banker

By: Jason Markum

Bank failures! Who would ever have thought that we would be talking about bank failures? We aren’t living in the wild West or the depression era when banks routinely went out of business and depositors lost all their money! The FDIC was created to stop bank runs after all…

But then the recession of late 2008 and 2009 struck. 100 banks went out of business in 2009, and some authorities believe that number could increase in 2010. And it’s not just little banks; major banks have also gone out of business within the last year. Some of these banks get bought up by larger banks, but some of them simply fade away…

Yes, we have FDIC insurance that will pay you back all the money you lose up to a certain amount. But! It may be years before you see that money! And what happens if you have more then the FDIC minimums? I’ll tell you what happens, you’re out of luck!

So how do you make sure your bank isn’t about to go out of business? Here is a list of several questions you can ask your banker that are appropriate and not at all pushy that will give you a pretty clear indication of how financially firm and solvent you bank really is…

First, ask for your bank’s financial statement. Any bank or thrift will be able to provide you with their most current financial statement. Most of them publish them either annually or semiannually. Try to get the most current up-to-date financial statement.

When looking at the financial statement, pay special attention to the net worth of the bank and also look and see how many workouts are listed. A workout is When the bank is helping troubled companies. Also pay special attention to the amount of real estate the bank owns or has lended out.

If your bank is a publicly traded company then you can check with the SEC, the Securities and Exchange Commission, to get all of their current financial statements. Take a look at the investments that the bank has made, are they safe investments or do they seem shaky to you?

Take a look at the bank’s track record over a long period of time. What you’re looking for here is the growth rate. Has the bank grown quickly? If so this may be a warning signal since fast growth rates can be interpreted as the bank taking Too many risks.

Finally you should ask about the banks “at-risk” loans. At-risk loans are loans that have been in default for two months to four months, that is sixty to one hundred and twenty days. Obviously the more of these at risk loans your bank is carrying, the higher the risk that the bank could go out of business.

The best thing that you can do is to make sure that you keep less money in your account than the minimum FDIC payout rate. This used to be $100,000, but has been raised recently. Check with the FDIC to see what the current rate is and make sure you keep less than that in any one bank.

And be sure to keep up on current events. Most of the time newspapers like the Wall Street Journal begin to sniff around a bank if they feel it may be in trouble. Spotting warning signs early can ensure that you get your money out in time.

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