Bank crisis: 10 things to know now

By Liz Pulliam Weston

The financial system is dealing with the worst housing meltdown since the Great Depression and is fending off an extraordinary number of body blows: the Bear Stearns debacle, the Washington Mutual bank failure, the takeover of Fannie Mae and Freddie Mac, the Lehman Bros. bankruptcy and the government's bailout of American Insurance Group and seemingly everyone on Wall Street.

The events of the past few months have many people reeling. My e-mail inbox and the MSN Money message boards have been flooded with readers' questions about the financial crisis.

Here are answers to some of those questions.

How can I tell if my bank will fail?

The short answer: You can't. The Federal Deposit Insurance Corp. doesn't publicize the names of banks on its "problem list." According to the American Bankers Association, most banks on the list recover and return to profitability without intervention. Others are snapped up before the government can intervene, as in Citigroup's purchase of Wachovia.

Ratings services such as Bankrate.com's Safe and Sound system and TheStreet.com Ratings try to measure the relative strength of the nation's financial institutions. Some troubled banks recover, while others plunge quickly into insolvency. For more, see "What if your bank fails?"

If my bank fails, will I still have access to my money?

If you're at the gas pump trying to use a debit card, for instance, will it just not work one day?

You'll most likely have uninterrupted access to your accounts even as your money is transferred to a new bank.

Regulators usually shut down failed banks on Fridays. The FDIC then works all weekend to transfer insured deposits and most of the bank's assets to the bank that's taking over the business, or to a new entity created for just this purpose. (For example, Washington Mutual's insured deposits and assets were transferred to JPMorgan Chase this way.)

In the meantime, depositors could access their accounts via ATMs, debit cards and checks. On the following Monday, it would be business as usual.

In the rare event that the FDIC couldn't find a buyer and a new bank were not created, then the bank would shut down and you'd be without access to your money for a few days. Debit cards and ATMs would not work, and checks that hadn't cleared would be returned with a "bank closed" notation. On the Monday after the closure, the FDIC would begin sending checks to customers for the amount of their insured deposits.

Are credit unions insured the same way?

All federally chartered and most state-chartered credit unions are insured by the National Credit Union Share Insurance Fund, which is a federal fund that is backed -- like the FDIC -- by the full faith and credit of the U.S. government. The share-insurance fund is an arm of the National Credit Union Administration, a federal agency. To see whether your credit union is covered, click here.

Funds in these credit unions are insured to the same amounts as FDIC-insured accounts: $250,000 per depositor per credit union, and up to $250,000 coverage for certain retirement accounts.

A few state-chartered credit unions are not covered by the NCUSIF but instead get coverage from private insurers, such as American Share Insurance, which are not insured or backed by the U.S. government.

How about my investments? Are they insured?

Investment accounts, even those purchased through bank branches, aren't covered by the FDIC.

They are, however, typically covered by the Securities Investor Protection Corp., which provides up to $500,000 per customer to restore funds to investors with assets in bankrupt or troubled brokerage firms.

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The SIPC's protection is limited, however. You're not protected against swings in the market, investment losses or investment fraud.

To be covered, your brokerage needs to be an SIPC member. To check, visit the SIPC Web site or call -202-371-8300.

Should I bail out of the stock market?

If you already have all the money you're ever going to need, sure.

If you're like most of us, though, you're still working toward financial independence, and you need the long-term returns of the stock market to get there. In the long run, stocks perform better than any other investment -- but you may have to weather times like these once in awhile.

Even if you're in retirement, financial planners will typically tell you to keep at least 50% of your assets in stocks and stock mutual funds to overcome inflation's effects and ensure you don't run out of money.

Continued: Is my 'safe' money safe?

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