banking

Defend yourself against a failing bank

"Consumers need to be smart about where their deposits are in this environment," says Satlow. "Banks are in a much weaker financial condition than they've been in for many years. (Stay within) FDIC limits and be smart about how you structure your accounts. The other lesson that's important is that there's a reason why certain banks will offer higher yields than others. Cast a wary eye on yields that are noticeably outside the pack. If a bank is offering 50 or 100 basis points above the pack, you need to know why. How can they afford to pay 100 basis points more than another bank and why would they?"

Satlow says a higher yield isn't always a sign of a bank in critical financial condition and, in fact, online banks have what he calls a natural overhand advantage in this area. But he advises consumers to be wary and make sure all deposits are insured.

U.S. Bank failures 2007 to 2008
Institution
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Closing date
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IndyMac Bank, Pasadena, Calif.July 11, 2008
First Integrity Bank, NA, Staples, Minn.May 30, 2008
ANB Financial, NA, Bentonville, Ariz.May 9, 2008
Hume Bank, Hume, Mo.Mar. 7, 2008
Douglass National Bank, Kansas City, Mo.Jan. 25, 2008
Miami Valley Bank, Lakeview, OhioOct. 4, 2007
NetBank, Alpharetta, Ga.Sept. 28, 2007
Metropolitan Savings Bank, PittsburghFeb. 2, 2007

What happens after a failure

To be sure, the highly publicized mess outside IndyMac after the failure was announced showed that the ensuing process doesn't always go as smoothly as officials would like. Typically, the bank's regulator announces the closing and appoints the FDIC as receiver.

The FDIC goes on scene and, usually, shuts the bank on a Friday and reopens it by the following Monday. Even in times such as this, it hasn't been difficult to find buyers to take over most institutions since they're often only taking the insured deposits. (For more specific information on what happens after a bank failure, read a Q&A with the FDIC's David Barr.)

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"The FDIC can carve out all the problem loans and other assets of the bank and just pass a clean institution to the acquiring bank," says FDIC's Barr. "Even if all they want are the branches, then they just take the insured deposits and they get an instant bank. Many times they'll take the front-line employees too.

"We try to market the liabilities as quickly as possible. The FDIC is not a financial institution; we're a liquidator. If they are marketable loans that could easily be sold on the secondary market, we'll try to sell those. If they're troubled loans, then we work with the customers to get them to perform.

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