We’ve all been watching the news with some trepidation, I’m sure. It seems that banks are failing right and left. How do we know if our bank is safe, and what should we do if we hear a rumor that our bank is hitting the skids?
I sent these questions to a friend of mine, who is the manager of a major bank. He willingly answered them for me, but he asked that I not share his name. It’s not a very popular time to be a banker.
I asked him, “What are the signs that my bank is struggling?”
His reply: “After the stock market crash in 2008, a lot of people pulled money from the market and dumped it into banks. Most banks are very cash heavy right now–they don’t need deposits. That’s why interest rates on savings are so low. If you see a bank offering a much higher interest rate on savings than the rest of the banks, it means that they are hurting for cash–not a good sign.
“Right before Wachovia was taken over, it was offering CD rates that were very high–no other bank could touch them. Why? Because Wachovia needed the money to handle all the bad mortgages it was charging off. In the end, it wasn’t enough, and a bigger bank ate them up.
“The same thing happened to Washington Mutual. And the same thing would happen to another bank it if failed. Another bank would take it over.”
I’ve seen movies where people make a run on their banks and clean them out. Is this type of scenario realistic, or is that something the movie makers dreamed up for greater drama?
“Would there be a case where people went to their bank and saw the doors locked and ‘we are out of business–sorry, you can’t get your money?’ Maybe for a couple of days. But banks are heavily regulated by the government–and these government agencies know when a bank is in trouble way before they ever shut their doors. They will step in and make sure that the customers have a limited impact.
“Sadly, the end result of all of this is that smaller banks aren’t able to compete with larger banks–and they are the ones that have the rumors of ‘being in trouble.’
“Remember, your money in the bank is insured by the FDIC. The worst thing you can do is pull your money out of the bank and hide it in your house. If you get robbed, or have a fire, you’re out that cash. Insurance won’t cover that.”
So, what should I do if I hear a rumor that my bank is going under?
“Best advice I could give? Find a bank with nice people that will honestly try to help you the best way they can by putting you in the right product. If you ever feel like you are pressured into doing something, walk away from them–and fast. Banks make money over the long term. And, usually, the more products you have with one bank, the more perks you get–perks that can save you from monthly fees and even give loan discounts.
“So, if you hear your bank is in trouble? Compare what they are offering to other banks. If they are offering things other banks aren’t even close to, it usually means something is wrong.”
Thank you so much for answering these questions for me, undisclosed banker friend!
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