AssetPreserver News

There is a preconceived notion on how banks lend money. They make MUCH more money on lending than most people realize.

After reading several books and articles on the money industry I plan to release several easy-to-read articles on the subject. The first one is about how banks really lend money. Granted there is not much you can do to stop their practices, except not borrow or join a credit union, but I believe it is important to understand what they do.

Good news. The FDIC has extended its coverage through 2014. To quote:

Deposits at FDIC-insured institutions are now insured up to at least $250,000 per depositor through December 31, 2013. On January 1, 2014, the standard insurance amount will return to $100,000 per depositor for all account categories except for IRAs and other certain retirement accounts which will remain at $250,000 per depositor.

You can check with the FDIC periodically to see any changes to their policy.

Also, credit union members are covered, too.

The National Credit Union Administration who administers the National Credit Union Share Insurance Fund (NCUSIF). Backed by the full faith and credit of the United States government, the NCUSIF insures the member accounts in all federal credit unions and the substantial majority of state-chartered credit unions.

Starting Oct 3rd, 2008 and ending Dec 31, 2009, the deposit insurance for an individual has been raised to $250,000. This has been extended to Dec 31, 2013:

The Emergency Economic Stabilization Act of 2008 increased the insurance coverage on all accounts up to $250,000. until December 31, 2013.

AP

I have been studying monetary policy, banking, the Fed, and overall money creation. I came across this snippet from THE CREATURE FROM JEKYLL ISLAND – A Second Look at the Federal Reserve which is relevant to today’s banking situation.

The FDIC has three options when bailing out an insolvent bank.

The first is called a payoff. It involves simply paying off the insured depositors and then letting the bank fall to the mercy of the liquidators. This is the option usually chosen for small banks with no political clout.

The second way is called a selloff, and it involves making arrangements for a larger bank to assume all the real assets and liabilities of the failing bank. Banking services are uninterrupted and, aside from a change in the name, most customers are unaware of the transaction. This option is generally selected for small and medium banks.

In both the payoff and selloff, the FDIC takes over the bad loans of the failed bank and supplies the money to pay back the insured depositors.

The third option is called a bailout. In a bailout, the bank does not close, and everyone – insured or not – is fully protected. Such a privileged treatment is accorded by the FDIC only rarely to a select few.

The select few are wealthy and powerful banks that are considered too big to fail without doing terrible harm to the community. Note that ALL deposits are covered; even those over the FDIC limit. This gives these banks a definitive competitive edge.

I came across this recently and thought it might be of use. It is the FDIC’s ongoing list of failed banks since Oct 2000. Clicking on each bank gives information on the failure and what is in store for the customers.

Are you worried if your bank, credit union, or thrift is safe? See how your bank, thrift, or credit union rates with Bankrate.

Each entity is ranked by Bankrate’s proprietary Safe & Sound system based on financial strength and stability. 22 tests are applied to a financial institution to measure:

• Capital adequacy
• Asset quality
• Profitability
• Liquidity

An institution is rated from 5 stars (superior) to 1 star (lowest rating). Along with the star rating, a memo, and financial statement are available.

The memo includes institutiona highlights which shows information such as loan amounts, deposits, and profitibility. Early warning signs, if any, are included so you can keep an eye on.

The financial statement has a summary of important measurements such as net income, earnings,  assets, liquidity, and asset quality.

Though not an exclusive piece of information to make a banking decision on, it is very helpful to see where your bank rates. Note that these rankings are updated quarterly.

Another check is the one to the FDIC in which you can tell if your bank is FDIC insured. You can learn how deposit insurance works, find out whether your bank is FDIC insured, and other important tasks.