How Safe Is Your Bank?

With the recent Federal siezure of IndyMac bank and many banks and financial institutions getting a beatdown on Wall Street, it's important to check and see if your bank is okay.

First of all, here are the rules for FDIC insurance:

http://www.fdic.gov/deposit/deposits/index.html

The insurance is for up to $100,000 per depositer per insured bank. IRAs are insured up to $250,000 if the money is deposited in a FDIC insured bank account.

However, don't wait for the bank to be taken over by the FDIC (there were lines of people outside the IndyMac bank waiting to get their money today). Once the bank is taken over, your ability to access your money will be severely limited. If your bank is in trouble, go there tomorrow and take all your money out and put it in a better institution (again, do your research).

FDIC only has about $50 billion in capital available to insure every bank account in America. They estimate IndyMac is going to cost them about $10 billion. If one failure will suck up 20% of their capital, how much is the next one going to cost, and what's going to happen when they run out of money?

You can check the rating on your bank at bauerfinancial.com. They rate it on a 5 star scale (my bank still has a 4 star rating) and you can purchase a report on your bank if you're interested.

However, there is no guarantee. Apparently FDIC keeps a list of troubled banks (not disclosed to the public). There are about 90 banks on this list right now. The shocking news is the IndyMac WAS NOT ON THAT LIST WHEN IT FAILED!

Also, try to keep an eye on your bank appearing in the news. Have they had to do any emergency capital raising? Is the bank based out of California or Florida (ground zero for the housing bubble)? Has their stock price recently plunged? Is Senator Chuck Schumer talking about your bank? All of these can be signs that there are problems.

At this juncture, it might make sense to keep a little cash around the house just in case. Am I being paranoid? Probably, but better safe than sorry.

Be proactive! Don't be a victim! This is going to get worse before it gets better.