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Nine Banks Have Failed in 2009 So Far

by Flexo on February 9, 2009

in Banking

Three more banks failed on Friday, bringing the 2009 tally to nine. When banks fail, the deposits (bank accounts) are transferred to another bank, sometimes with the FDIC facilitating the transition. Regardless of the process, bank accounts are generally insured by the FDIC up to $250,000 per depositor, so you won’t lose your money if you have an account at a bank that fails. In fact, most of the time, the transition is completely seamless. Old debit and ATM cards continue to work, you can still write checks.

The $250,000 limit is an increase over the previous limit of $100,000. The current law is scheduled to expire at the end of 2009, with limits returning to $100,000 next year. The law may be extended or even superseded by a new law that would increase the limit further.

Here are the latest banks to fail.

FirstBank Financial Services, McDonough, Georgia. Deposits here will now be held at Regions Bank, based in Birmingham, Alabama, and FirstBank’s branches will reopen as Regions branches.

Alliance Bank, Culver City, California. Deposits here will now be held at California Bank & Trust, based in San Diego, California, and Alliance’s branches will reopen as California B&T branches.

County Bank, Merced, California. Deposits here have been transferred to Westamerica Bank, based in San Rafael, California, and County’s branches are reopening today as Westamerica branches.

These banks were closed earlier this year:

  • MagnetBank, Salt Lake City, Utah does not have a receiving bank, so the FDIC will be mailing checks to customers for their insured amounts.
  • Suburban Federal Savings Bank, Crofton, MD has transferred its deposits to Bank of Essex, Tappahannock, VA.
  • Ocala National Bank, Ocala, FL has transferred its deposits to CenterState Bank of Florida, National Association, Winter Haven, FL.
  • 1st Centennial Bank, Redlands, CA has transferred its deposits to First California Bank, Westlake Village, CA.
  • Bank of Clark County, Vancouver, WA has transferred its deposits to Umpqua Bank, Roseburg, OR.
  • National Bank of Commerce, Berkeley, IL has transferred its deposits to Republic Bank of Chicago, Oak Brook, IL.

When deposits change hands, it’s usually uneventful. As you can see, occasionally, the FDIC cannot find a bank willing to take on a failed bank’s deposits. This is the case with MagnetBank. In cases like this, bank customers will have access to all their money within the insured limits, but there is a slight amount of hassle required to find a new bank.

We are only five weeks into 2009 and nine banks have already failed. Could that number be one hundred by the end of the year?

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Whoo Hoo: Washington Mutual Next to Fail?

by Flexo on September 11, 2008

in Banking

Shares in Washington Mutual, the country’s largest savings and loan bank, dropped over 30% in one day due to fears that this institution will be the next in a series of failures of financial companies. WaMu holds $310 billion in assets, a huge amount of deposits. The FDIC, which might step in to take over the bank, has only $53 billion set aside to assist customers when their banks collapse.

There are a few scenarios. A larger domestic or foreign bank could step in to take over all or part of Washington Mutual. This would be a risky move for the acquiring bank, however, thanks to about WaMu’s $180 billion tied into mortgage-related loans and expectations of massive losses this year.

If the FDIC steps in, it won’t be able to cover all deposits with reserves. Perhaps it’s possible for a combination acquisition of WaMu by FDIC and a private bank. Private equity firms could also infuse capital into the company, but this is another risky choice for equity investors.

Washington MutualIt’s more likely that, if necessary, Washington Mutual will be taken over by FDIC, and any shortfall in deposits will be assisted by the U.S. Treasury printing more money. This increase in the money supply would allow WaMu’s customers to withdraw their accounts in full when needed, but the real value of that money — and the value of the money held by anyone who saves or invest using the U.S. dollar — will be less. How much less? That remains to be seen.

I do not have any money in Washington Mutual. I’ve considered opening a savings account thanks to the high interest rates they’ve offered recently, but my earlier laziness may have saved me stress today.

While in most circumstances your money held at a bank insured by the FDIC is safe, when the industry is in crisis with a string of failures, it makes sense to play a little safer than usual. I intend on always keeping my savings accounts within the FDIC limits. While I once considered simplifying my finances by reducing the number of banks in which I hold accounts, it may make more sense to diversify among a number of banks and credit unions.

Photo: P.C. Loadletter
Washington Mutual Stock Falls on Investor Fears, Eric Dash and Geraldine Fabrikant, The New York Times, September 10, 2008

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