Seen On

Good Question: How Do I Know My Bank Is Safe?

(WCCO) When there's a long line of people waiting for hours outside a bank to withdraw their money, it doesn't exactly instill confidence. The federal takeover of IndyMac Bank has Shawn Christenson of Minneapolis asking, "Is my bank safe?"

According to the Federal Deposit Insurance Corporation, just six U.S. banks have failed in 2008. That includes IndyMac in Pasedena, Calif. and First Integrity Bank in Staples, Minn.

"Oh it's a terrible thing for the banking industry to see that, because the banking industry is solid, strong and that's not reflective of what the condition is," said Steve Meads, President and CEO of Bremer Bank, Twin Cities.

"There's nothing safer than a bank. In a nation of 12,000 banks and one of them happened to go bad," he said. "Banks are well regulated and almost all of them are making a profit, making a lot of money."

IndyMac was an off shoot of Countrywide Mortgage, and almost all of its revenue came from risky Jumbo loans. When people started to default on those loans, the loss of revenue was devastating.

When the bank went under, the federal government took over operations. Ninety-eight percent of the bank's customers had their deposits fully insured.

"FDIC is the Federal Deposit Insurance Corporation. It came out of the Great Depression when there were a run on the banks, that the federal government would insure individual deposits up to $100,000," explained Meads.

The insurance is tied to the owner of the account, so if you had several accounts at one bank the insurance would cover a total of $100,000.

Individual Retirement Accounts (IRAs) at banks are federally insured up to $250,000, according to Meads.

"Even though earnings are off this year as compared to last, banks are still making money, a lot of money," said Meads. He suggested that if a consumer's bank is not turning a profit, "I'd take a closer look at what's taking place."

As far as investigating any specific bank, Meads suggested that can be complicated.

"Because banks are heavily regulated, there's a lot of information out there. But unless you have a degree in finance, it can be complicated to figure out what it all means," he said.

The FDIC keeps a list of banks that are considered in danger. As of spring 2008 there were 90 troubled banks. In 1994, the list had 575 banks. However, the list isn't perfect, as IndyMac was not on it.

"I'm not sure where else you should put your money? Are you going to keep it in your house under a mattress or are you going to bury it in the backyard?" asked Meads.

Banks keep the money under lock and key and the deposits are largely insured, he said.

 

(© MMVIII, CBS Broadcasting Inc. All Rights Reserved.)