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Bank failures continue to increase every year since the recession begun. FDIC guarantee is still 250,000 dollars. But if dominos start falling, will FDIC be able to guarantee your bank accounts? Or should you consider looking into the safety of your own bank?
Is Your Bank Safe?
Close to Collapse: Bailed-Out Banks Facing Bankruptcy - January 4, 2011
By Elliott Wave International
We want to trust in the financial stability of our bank. After all, most of us have money in these institutions.
In spite of our wishful thinking, the tide of bank failures has not stopped. And these failures are occurring well after the heart of the financial crisis -- and even after some of these banks received bailouts.
* Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing.
* The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators.
* The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program.
Wall Street Journal (12/26)
Seven of the 98 small banks mentioned have already failed.
In the U.S. during 2010, 157 banks have failed -- that's the highest number since 1992. Which banks were they? You can start with the FDIC failed bank list that covers many banks that failed during the last 5 years.
More failures are likely because many banks are burdened by questionable "assets" and bad real estate loans.
- "...your money is only as safe as the bank's loans. In boom times, banks become imprudent and lend to almost anyone. In busts, they can't get much of that money back due to widespread defaults.
- If the bank's portfolio collapses in value, say, like those of the Savings & Loan institutions in the U.S. in the late 1980s and early 1990s, the bank is broke, and its depositors' savings are gone."
- Conquer the Crash, 2nd edition, pp. 175-176
Yes, the Federal Deposit Insurance Corporation (FDIC) insures depositors, but the question is: Does the FDIC have the wherewithal to "make whole" all depositors if scores of banks go under at the same time? Here at Elliott Wave International, we do not recommend that you count on the FDIC. Here's why:
- "Did you know that most of the FDIC's money comes from other banks? This funding scheme makes prudent banks pay to save the imprudent ones, imparting weak banks' frailty to the strong ones.
- When the FDIC rescues weak banks by charging healthier ones high 'premiums,' overall bank deposits are depleted, causing the net loan-to-deposit ratio to rise.
- The result, in turn, means that in times of bank stress, it will take a progressively smaller percentage of depositors to cause unmanageable bank runs."
- Conquer the Crash, 2nd edition, p. 177
Are some banks safer than others? We think so.
"Hope is not a strategy." If you plan to have money on deposit at a bank, we suggest reading our FREE report, "Discover the Top 100 Safest U.S. Banks." This 10-page bank safety report is available to you after you become a Club EWI member.
Inside the revealing free report, you'll discover:
- The 100 Safest U.S. Banks (2 for each state)
- Where your money goes after you make a deposit
- How your fractional-reserve bank works
- What risks you might be taking by relying on the FDIC's guarantee
Please protect your money. Download the free 10-page "Safe Banks" report now.
Learn more about the "Safe Banks" report, and download it for free here.
European stress tests revealed that European banks are fine. Last year U.S. stress tests showed that U.S. banks were fine also. We did not yet reach the economic conditions to really test these banks, but U.S. bank failure rate in 2010 is double the failure rate of 2009. Can it get worse? If it does, is your banks safe?
Please protect your money. Download the free 10-page "Safe Banks" report now.
Learn more about the "Safe Banks" report, and download it for free here.
Stress Test: How to Find the Safest Banks in the U.S. and Abroad
August 3, 2010
By Elliott Wave International
Stress test results for the biggest European banks were recently released, while the largest U.S. banks took their first stress tests in May 2009. But most people don't really care how much stress their banks are under; they are more worried about their own stress levels. One thing that adds to personal stress is worrying about whether their deposits are in a safe place. Bob Prechter has encouraged people to find the safest banks for their money since he originally wrote his New York Times best-selling book, Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression in 2002. This excerpt explains why banks of all sizes are riskier than they used to be (think about portfolios stuffed with derivatives, emerging market debt and non-performing commercial loans). You can also get a list of the Top 100 Safest U.S. Banks -- two banks per state -- that was just updated in late June with the latest available data by joining Club EWI and receiving EWI's Safe Banks report.
Excerpted from Conquer the Crash: You Can Survive and Prosper in a Deflationary Depression, by Robert Prechter
Many major national and international banks around the world have huge portfolios of “emerging market” debt, mortgage debt, consumer debt and weak corporate debt. I cannot understand how a bank trusted with the custody of your money could ever even think of buying bonds issued by Russia or Argentina or any other unstable or spendthrift government. As At the Crest of the Tidal Wave put it in 1995, “Today’s emerging markets will soon be submerging markets.” That metamorphosis began two years later. The fact that banks and other investment companies can repeatedly ride such “investments” all the way down to write-offs is outrageous.
Many banks today also have a shockingly large exposure to leveraged derivatives such as futures, options and even more exotic instruments. The underlying value of assets represented by such financial derivatives at quite a few big banks is greater than the total value of all their deposits. The estimated representative value of all derivatives in the world today is $90 trillion, over half of which is held by U.S. banks. Many banks use derivatives to hedge against investment exposure, but that strategy works only if the speculator on the other side of the trade can pay off if he’s wrong.
Relying upon, or worse, speculating in, leveraged derivatives poses one of the greatest risks to banks that have succumbed to the lure. Leverage almost always causes massive losses eventually because of the psychological stress that owning them induces. You have already read of the tremendous debacles at Barings Bank, Long-Term [sic] Capital Management, Enron and other institutions due to speculating in leveraged derivatives. It is traditional to discount the representative value of derivatives because traders will presumably get out of losing positions well before they cost as much as what they represent. Well, maybe. It is at least as common a human reaction for speculators to double their bets when the market goes against a big position. At least, that’s what bankers might do with your money.
Today’s bank analysts assure us, as a headline from The Atlanta Journal-Constitution put it on December 29, 2001, that “Banks [Are] Well-Capitalized.” Banks today are indeed generally considered well capitalized compared to their situation in the 1980s. Unfortunately, that condition is mostly thanks to the great asset mania of the 1990s, which, as explained in Book One, is probably over. Much of the record amount of credit that banks have extended, such as that lent for productive enterprise or directly to strong governments, is relatively safe. Much of what has been lent to weak governments, real estate developers, government-sponsored enterprises, stock market speculators, venture capitalists, consumers (via credit cards and consumer-debt “investment” packages), and so on, is not. One expert advises, “The larger, more diversified banks at this point are the safer place to be.” That assertion will surely be severely tested in the coming depression.
There are five major conditions in place at many banks that pose a danger: (1) low liquidity levels, (2) dangerous exposure to leveraged derivatives, (3) the optimistic safety ratings of banks’ debt investments, (4) the inflated values of the property that borrowers have put up as collateral on loans and (5) the substantial size of the mortgages that their clients hold compared both to those property values and to the clients’ potential inability to pay under adverse circumstances. All of these conditions compound the risk to the banking system of deflation and depression.
Financial companies are enjoying big advances in the current stock market rally. Depositors today trust their banks more than they trust government or business in general. For example, a recent poll asked web surfers which among a list of seven types of institutions they would most trust to operate a secure identity service. Banks got nearly 50 percent of the vote. General bank trustworthiness is yet another faith that will be shattered in a depression.
Well before a worldwide depression dominates our daily lives, you will need to deposit your capital into safe institutions. I suggest using two or more to spread the risk even further. They must be far better than the ones that today are too optimistically deemed “liquid” and “safe” by both rating services and banking officials.
Inside the revealing free report, you'll discover:
- The 100 Safest U.S. Banks (2 for each state)
- Where your money goes after you make a deposit
- How your fractional-reserve bank works
- What risks you might be taking by relying on the FDIC's guarantee
Please protect your money. Download the free 10-page "Safe Banks" report now.
Learn more about the "Safe Banks" report, and download it for free here.
How Safe Is Your Bank, Really?
Our FREE report reveals why the FDIC guarantee is just an "illusion"
March 12, 2010
By Nico Issac
- So far in 2010, the number of US bank failures has reached 25, a rate of two per week. This compares to 25 total bank failures for ALL of 2008, and three for 2007.
- The benchmark KBW Bank Index still stands 60% below its 2007 peak, while one-third of all US banks reported a net loss for 2009.
- The FDIC's list of "problem" institutions rose from 552 to 702 from Q3 to Q4 of 2009.
- And each new day could bring a new, personally addressed letter to announce the name change of your financial institution.
Yet - no matter how grave the data gets, few people imagine the corporate banking crisis trickling down to average Joe or Jane and their lollipop-dispensing drive-through bank tellers.
It's not naive to think that, either. The agreement is understood: Money goes into the bank as liquid capital, and comes out as a loan certificate. Practically speaking, your account balance is only as secure as the loans the bank makes with its depositors' money. The trust in that exchange reflects two main beliefs:
1) Banks know best how to allocate their clients' money so as to ensure the greatest risk-to-reward ratio.
2) Banks are guaranteed by the Federal government, via the Federal Deposit Insurance Corporation.
Well, as the latest report from our complimentary Club EWI service reveals -- neither one is as it seems. This 15-page exclusive compiles the most groundbreaking insights from various collected works of EWI president Bob Prechter himself, including: the best-selling book Conquer the Crash and previous Elliott Wave Theorist publications. Off the top are these riveting thought-burners:
How are banks using your money? Not wisely. "At latest count, US banks report $6.942 Trillion in deposits, and $6.945 Trillion in loans. In other words, the average bank in the US has lent out 100% of its deposits."
Where is your money going? For the most part, it's tied up in mortgage-backed securities. Last count: One in every 418 U.S. homes have filed for foreclosure, while the rate of default on commercial mortgages doubled in Q4 of 2009. See the problem?
What about the trusted sticker in the front window of US banks assuring that the FDIC guarantees to refund depositor's losses of up to $100,000? Well, as the Club EWI report reveals, this sticker is merely a "symbol of confidence," NOT a certainty of it. The piece goes on to add:
"Did you know that most of the FDIC's money comes from other banks? When the FDIC rescues weak banks by charging healthier ones higher 'premiums,' overall bank deposits are depleted, causing the net loan-to-deposit ratio to rise. Ultimately the federal government backs the FDIC, which sounds like a sure thing. But if tax receipts fall, the government will be hard pressed to save a large number of banks with its own diminishing supply of capital. Huge illusions can melt away in a flash if the system fails."
Where then is a bank I can trust? Here, the Club EWI report provides a list of the Top 100 highest-rated banks in America by state based on third-quarter 2009 data. The publication also reveals the global jurisdictions that "provide wealth preservation service as opposed to interest income and daily transaction conveniences."
Inside the revealing free report, you'll discover:
- The 100 Safest U.S. Banks (2 for each state)
- Where your money goes after you make a deposit
- How your fractional-reserve bank works
- What risks you might be taking by relying on the FDIC's guarantee
Please protect your money. Download the free 10-page "Safe Banks" report now.
Learn more about the "Safe Banks" report, and download it for free here.
Nico Isaac writes for Elliott Wave International, a market forecasting and technical analysis firm.
We have touched this subject few months ago, back in 2009:
More than 130 banks will have failed by the end of 2009.
Is Your Bank Safe?
November 18, 2009
By Gary Grimes
Please understand that this article is about more than safeguarding your money; it's about saving you headache and heartache. It's about giving you peace of mind.
Before I explain, please allow me to ask a few questions:
- Have you given much thought about the money in your banking accounts lately? Do you know if it's safe?
- Have you thought about what might happen if your bank fails?
- Did you know you could be left in the lurch for days, weeks, even months before you get your money back from the FDIC?
- What happens if the FDIC can't cover your funds?
- How do you find a safe bank to protect your deposits right now?
I hope you've given these questions some serious thought.
I have to be honest: These questions were about the farthest things from my mind until about a year ago, when I downloaded the free "Safe Banks" report from my colleagues at Elliott Wave International. At first, the report scared me: I thought, "Oh My Gosh! I could lose all of my money if my bank fails. What would I do?"
But as I read on, I figured out that the report was not only about making my money safe; it was about giving me peace of mind.
If you've read any of the following news items, perhaps you understand the fear of learning your money might not be safe. Here's a recent story from Bloomberg:
- Sept. 24 (Bloomberg) -- In May, the FDIC said it was projecting $70 billion of losses during the next five years due to bank failures. The agency said it expects most of those collapses to occur in 2009 and 2010.
- The FDIC’s problem is that it didn’t collect enough revenue over the years to cover today’s losses. The blame lies partly with Congress. Until the law was changed in 2006, the FDIC was barred from charging premiums to banks that it classified as well-capitalized and well-managed. Consequently, the vast majority of banks weren’t paying anything for deposit insurance.
- Of course, we now know it means nothing when the FDIC or any other regulator labels a bank “well-capitalized.” Most banks that failed during this crisis were considered well-capitalized just before their failure.
By the end of 2009, more than 130 banks will have failed. Most depositors will have little clue their bank was even at risk. Worse yet, the string-pullers in Washington are doing everything in their power to hide information about the safety of your bank from you.
So far, the FDIC has had enough money to cover insured depositors. But that money is quickly running out. Just last week, the FDIC voted to mandate early payment of insurance premiums to help cover at-risk banks. But only time will tell if this move will provide the funds needed in the years ahead. Here's what the Associated Press reported on Thursday, Nov. 12:
- WASHINGTON (AP) -- U.S. banks will prepay about $45 billion in premiums to replenish a federal deposit insurance fund now in the red, under a plan adopted Thursday by federal regulators.
- The Federal Deposit Insurance Corp. board voted to mandate the early payments of premiums for 2010 through 2012. Amid the struggling economy and rising loan defaults, 120 banks have failed so far this year, costing the insurance fund more than $28 billion.
Worse yet, three more banks failed the very next day, Friday, Nov. 13.
This is a very real problem and a direct threat to your money. It's more important now than ever to personally ensure the safety of your bank. The free 10-page "Safe Banks" report can help. It includes the very latest bank safety ratings from the third quarter of 2009 to help you prepare for what's still to come this year and next.
Inside the revealing free report, you'll discover:
- The 100 Safest U.S. Banks (2 for each state)
- Where your money goes after you make a deposit
- How your fractional-reserve bank works
- What risks you might be taking by relying on the FDIC's guarantee
Please protect your money. Download the free 10-page "Safe Banks" report now.
Learn more about the "Safe Banks" report, and download it for free here.
Gary Grimes focuses on mass psychology, U.S. stocks and the U.S. economy. Gary has a bachelor’s degree in journalism from Auburn University in Auburn, AL, where he was first turned on to the Austrian School of economics by way of the world-famous Mises Institute. His study of classical liberalism eventually led him to discover the Elliott Wave Principle and Robert Prechter’s theory of socionomics.
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