This doesn’t sound like good news.

[FDIC] is planning to beef up its staff — including temporarily hiring up to 25 retired FDIC employees who worked in the agency’s more than 200-person division that handles failed banks — to handle an anticipated increase in bank failures.

If you keep funds in some of the smaller online banks, you might want to reconsider your saving strategy. While the FDIC insures deposit accounts up to $100,000 per depositor, you might be exposed to delays when withdrawing your money if your bank disappears. Last year, NetBank failed and its accounts were absorbed by ING Direct. Individuals and companies had trouble getting money out. This could become more common in the next year or so.

To help stave off bank failure, the government is bailing out American banks. However, it is not the United States government; foreign investors are investing heavily in domestic banks through sovereign wealth funds, which basically means that banks in this country are increasingly owned by overseas governments.

Singapore recently paid $4.4 billion for an ownership stake in Merrill Lynch. The Chinese bought a $5 billion piece of Morgan Stanley… Middle Eastern and East-Asian “sovereign wealth funds” are in the process of owning a larger and larger portion of the global banking system.

The foreign governments aren’t investing enough to gain control of the companies or seats on the Board of Directors, but there is some chatter about requiring more disclosure from soverign wealth funds.

Bank profits plunge 84 percent in 4Q [AP]
Foreign investments are just bailouts [Marketplace]
Foreign investments in US banks draw scrutiny [Boston Globe]

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I mentioned yesterday that NetBank melted down and was taken over by ING Direct. Most customers will have a seamless transition, but not everyone.

Applied Cognetics, a small business, held about $1 million in deposits at NetBank. They won’t be able to access that money for quite some time — if they ever get paid back. Why in the world would anyone keep more than $100,000 in a bank account? The FDIC insures only up to $100,000 per customer (plus another $100,000 if they hold a joint account). That means that if the bank dissolves, customers will still be able to get to their money.

NetBank will owe this money to Applied Cognetics, and any depositor whose accounts were valued higher than $100,000. According to the FDIC press release, customers who have deposited more than the insured amount will receive an immediate payment of half of the uninsured balance. Applied Cognetics might receive the rest of the money eventually, but chances are they won’t be able to access it when they need it.

These are the chances you play with when you deposit more than $100,000 into a bank account. Knowing this, why did Appied Cognetics make this decision?

When Colthrust [president of Applied Cognetics] had approached traditional brick-and-mortar banks to open a commercial account, he found them unhelpful and the paperwork daunting. He never imagined losing access to his money.

Paperwork is a hassle, sure. The chances of a bank declaring bankruptcy are usually low. However, Applied Cognetics could have made better decisions about their money management. If you have lots of cash lying around, diversify across banks so you don’t exceed FDIC limits.

Could They Lose $900k? [Fortune Small Business Magazine]

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