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Bailout or no bailout, your money -- as long as you have $250,000 or less in insured accounts at any one bank -- is safe.
Yanking your money out does nothing other than feed the insecurity.
Consider the case of the now-defunct IndyMac Bank, whose customers sweltered in long lines outside branches last summer as word spread that regulators had shut down the once highflying institution.
The scene -- folks fanning themselves in the July heat, some even bringing along beach chairs for the wait -- made great images for the media.
But the whole waiting-in-line thing was supremely pointless.
The vast majority of IndyMac depositors were fully insured and didn't lose a dime. Customers could still use ATMs, debit cards and checks to access their money over that weekend as the Federal Deposit Insurance Corp. sorted out the failed bank's business. By Monday, customers could resume all other transactions, including transferring their accounts to another bank if they wanted.
The fact is, we're out of practice when it comes to failing banks. Nearly two decades have passed since the savings and loan crisis took out more than 1,000 financial institutions at a cost to taxpayers of $125 billion.
Unfortunately, we're getting a refresher course:
- A staggering 26 banks failed in 2008 and six more have failed through January of 2009. The list includes Washington Mutual, by far the largest institution ever to fail.
- The FDIC's list of "problem" institutions jumped to 171 at the end of September 2008 (the latest total was released Nov. 25), compared with 117 at the end of June. The agency doesn't release the names of banks it worries about, fearing such disclosure will contribute to bank runs, but said assets held by the troubled banks swelled from $78 billion to $116 billion.
- Bank analysts predict dozens and perhaps hundreds more failures are to come, driven by bad mortgage loans, falling home prices, the credit crunch and a flagging economy.
Here's what you need to know about the safety of your bank accounts:
Don't expect to call it. It's virtually impossible to tell in advance which institutions will fail. Some can limp along for years and then recover; some can plunge from seeming strength into chaos virtually overnight.
You can (and should) consult ratings services such as Bankrate.com's Safe and Sound system or TheStreet.com ratings so that you have some idea of your institution's relative strength, said longtime banking analyst Bert Ely of Ely & Co. But you should understand that these ratings are largely based on the banks' own reports of their financial condition, known as "call reports." Fraud and other problems can be hidden for months or even years.
"I've been reading call reports for 25 years, and every once in a while I still get surprised," Ely said. "The rating services are not bad, but they're not foolproof."
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Know your coverage. Bank accounts are typically insured to a limit of $250,000 per depositor per insured bank. (Find out here if your bank is FDIC-insured.)
- Talk back: Should we bail out the banks?
To get an estimate of your coverage, check out the FDIC's interactive tool. If your money's in a credit union, your accounts probably are insured to similar limits by another government agency, the National Credit Union Administration. Check here.
Have more money in the bank than you have coverage? Transfer the excess to another bank (not just another branch of the same bank; that doesn't increase your coverage). If your bank fails, you may get back only cents on the dollar for any funds in excess of FDIC coverage limits.
"The best thing you can do," Ely said, "is spread your money around."
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Understand the process. If your bank is seized, it could be a nonevent -- or a real hassle.
Regulators usually step in to close a bank on a Friday. Most often, another bank has been lined up to buy the failed bank's business, minus any problem loans and troubled assets. (In IndyMac's case, insured deposits and "substantially all" of the bank's assets were transferred to a new federally charted institution, IndyMac Federal Bank.)
Regulators immediately hand the reins to the FDIC, which works over the weekend to ensure an orderly transition, and the bank reopens under new ownership on Monday. In the meantime, customers can access their accounts using ATMs, checks and debit cards as if nothing had happened. That access continues once the bank reopens.
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