Where Do We Stand – How Healthy Are The Banks?

This could go alot of directions, but I’ll focus on some news posted on CNN and comments by our “good friend” Ben.

First from CNN is an article about potential bank closures on the horizon.

“Regulators are bracing for 100-200 bank failures over the next 12-24 months,” says Jaret Seiberg, an analyst with the financial services firm, the Stanford Group.

Expected loan losses, the deteriorating housing market and the credit squeeze are blamed for the drop in bank profits.

The problem areas will be concentrated in the Rust Belt, in places like Ohio and Michigan and other states like California, Florida and Georgia.

That is a lot of potential failures. What can you do to protect yourself?? First, as long as your deposits aren’t greater than $100,000 (some accounts such as IRAs, Joint Accounts, and some others?are insured separately), if a bank closes you will get your funds back. Generally, deposits are returned within 7 to 10 days. But, if you have longer-term CDs paying good rates, there is interest rate risk. Your 5-year at 5.50% could be closed and your available rates to re-invest at this time are much lower. And likely to become lower still.

Couple of things you can do. For new CD placements, check on the institution’s financials. Look for Established banks to be profitable (brand new banks usually carry a loss for up to 3-years). Also look for an Equity-to-Asset ratio of 7% or greater and/or a Total Risked Base Capital of 10% or greater. Finally consider reviewing their loan losses and delinquent loans.

For existing CDs, monitor the banks performance. Unfortunately the data that is available is usually about three-months behind. Data for 12/31/07 was just posted. If your institution’s performance continues to degrade and the penalty isn’t too large, you may want to close out your CD. Of course, you would want to compare that loss to what would happen if you let it stay and it is closed later on. I should write an Early Withdrawal Penalty calculator and post it. Send me some energy drinks and I can get that done. Or if you know of one, leave a link in the comments and I’ll link to it.

This post has become longer than expected. I will have some thoughts on Ben tomorrow.

You can view the article here.

cd :O)

Be Afraid, Be Very Afraid

I’m reading Dwight’s commentary this morning, and Bam!, another great gov’t idea comes out like a tornado in a trailer park.? This is a potential for destruction on many levels.

Basically, since Plan 1 (New Hope) and Plan 2 (Newer Hope) are bound to fail, the gov’t just can’t let well enough alone.? Now they want to allow distressed (stupid people who should have read the documents) homeowners to refinance their house that they paid?$500,000 for, at the current market value such as $300,000.? The bank will be given a Negative Equity Certificate that in theory they could redeem if the house is sold and prices have risen (and what happnes if prices don’t recover enought?!?).? This allows the banks (stupid people who should have forced the above people to read the documents) to put off taking losses.?

It is a shell game plain and simple.? The country would be better off letting the cards fall.? Let the people lose their house.? That’s what happens when you make a very bad decision.? Let the banks take their lumps.?

We don’t learn without pain.? If you remove all of the pain from bad decisions there is no incentive to change course.? It is not the gov’ts job to save us from all of our bad decisions.? Get out of the way.?

Here is Dwight’s take.

cd :O)

New Long Term Commentary From WesCorp

Dwight Johnston has posted a new longer-term commentary. He goes over what components are looked at to decide if the economy is in a recession or not.? Ultimately, consumer outlook has a big part in this.? Unfortunately, the country usually is in the midst of one, long before it is “officially” declared.

Read his long-term commentary and also today’s going on.

cd :O)

HSBC Direct Savings Account Rate – Updated Feb 2008

Updated 9/24/09. HSBC has dropped their highest savings rates again. The current savings rate is 1.35% APY. The account needs to be set-up on-line. Keep in mind that your actual earnings will depend on how long you leave the funds in the account.

They are quite a large bank with over $169 Billion in assets. In the US, they have multiple FDIC#s, but it appears the savings accounts are issued under FDIC# 57890.

CD Rates Comparison

Other Posts of Interest

As I promised from an earlier post, here are some other blogs writing about things that may be of interest to you.? Venture over and comeback and let me know what you think.

Christian Finance Blog – Fed Cuts Rates Again — Action Plan
AllFinancialMatters – Foreign Ownership of the US
MightyAmerica – Stuff Nightmares are made of

Happy Reading.? cd :O)

Someone Elses Giveaway

MoneyNing is having a give away and trying to build popularity at the same time.? I’ve read many of his entries?and enjoy the posts and the conversation.

Check it out.

cd :O)

Washington Mutual (WaMu) Savings Account Rate

Updated 4/10/08.? Washington Mutual or WaMu as they are called, has a nice Savings Account Rate.? In this rate environment, I’m not a fan of the higher yield savings rates because they are bound to go lower.??The rate is 3.30% APY.

Washington Mutual



?

WaMu is federally insured by the FDIC.? The FDIC# is 32633.? They are over $300 Billion in assets.

Helpful Tax Deductions

The economy has had such bad news of late.? And will probably continue to do so.? As a way of taking a break, over the next few days I will bring you some posts from other blogs.? Hopefully, you find them helpful.? This next one comes at a great time.

fivecentnickel has made a post of?commonly missed?tax deductions.? If you haven’t filed already, you may find some gems to reduce your burden or increase your refund.

cd :O)

What is the Best CD Term to Invest In?

A very difficult question that never really gets easier.? There are so many variables and the answer is different for different people.

Hopewell CU blogs about various topics surrounding credit unions.?? They suggest ?4 to 5-years may not be too long.

I believe if you don’t have a CD ladder set-up already, that 2Y – 3Y terms may be best.? CD Rates are currently below where averages tend to be and a 2Y -3Y time frame will?hopefully turn that around.

However, if you have plenty of maturities coming up in the next few years, going longer?should be okay.? You have the earlier maturities to take advantage of higher rates if they begin to go up, and you will also be putting some on the longer end, protecting your rate, in case rates stay down for an extended period of time.

Here is an example.? If you purchase a 4.50% for 2-year today and invest $100,000, you will earn?about $9,000.? If you invest in a 1-year term at the same level, rates will need to?be at the same level next year?in order to earn the same amount.? So do you believe, rates will be the same or higher next year at this time??

Since it still looks like the Fed may lower rates another time or two, it is unlikely rates will be higher or the same next year.? What do you think?

The Dash

Most of the time?my?posts revolve around CDs and the economy.? Occasionally, I like to post something inspirational.? I’ve read this poem many times, but someone put it to music with photographs.? Remarkable!? Enjoy.

The Dash

cd :O)