Bank Failures in Nevada and California
The headlines this past weekend showed that US regulators took over two banks Friday afternoon and sold them both to Mutual of Omaha bank. This was the sixth and seventh bank failures this year.
Before becoming a broker, over 25 years ago, I spent some time working at Anchor Savings Bank in New York. I worked in their main office in Hewlett. I was fortunate to work very close enough to observe the President of the bank, who also starred in the commercials, Donald L. Thomas. His tagline was “Your Anchor Banker: He Understands.”
But what Thomas really understood was how to buy banks.
I watched him cut deals to buy branches and other banks in trouble over a cup of coffee and a doughnut in the cafeteria. He was a master of working with the FDIC, and the FSLIC which was the Federal Savings-And-Loan Insurance Corporation.
While news of the bank failure certainly makes for good headlines, it should be noted that many of these “transactions” are negotiated behind closed doors — and most banking depositors hardly notice any change at all.
In fact the FDIC ought to be complimented for the way they handle these transactions. In most cases regulators will “seize” the bank on a Friday afternoon, and re-open at 9 a.m. Monday morning under either a newly chartered Bank, or as part of another bank in a prearranged sale of assets. This was the case with First National Bank of Nevada and First Heritage Bank of California is past weekend.
For all practical purposes, on the surface, it appears to be business as usual at banks that go through this process. However, business drastically changes in several ways. These banks will usually be restricted in the manner and amount in which they can lend — if they can lend at all — while under receivership.
Additionally, assets that exceed the FDIC coverage will not be insured. It’s just really careless and foolish for individuals to deposit more than $100,000 in one bank. In a true sign of the times, I had not had that “$100,000 FDIC limit discussion” with any clients since 1991. I’ve had it several times just the last few days.
Whenever there is an “intervention” by the FDIC, there is always a chance you can lose money. Your money may not be available on the day your CD was supposed to come due, and there is the possibility that you could lose interest — or have your rate on your CD reset. It’s always best to contact the bank, or the broker or investment adviser and get the details. Don’t assume things will work out by themselves.
The “Bailey Building and Loan scenario” in the movie “It’s a Wonderful Life” — where the depositors make a run on the bank, really doesn’t come into play unless Chuck Schumer is writing a letter. In fact, the FDIC announced that customers of the two banks taken over this weekend can access their money by writing checks, using ATM machines and debit cards. In case you had not heard, Senator Charles Schumer from New York wrote a letter a few weeks ago requesting an investigation into the business practices at Indy Mac Bank. Within a two-week period nearly all of the liquid assets were withdrawn from the bank, in a classic “Bailey Building and Loan” bank run. Thanks Chucky.
In summary, failed banks get lots of headlines and instill fear — where there really doesn’t need to be any. The FDIC — one government agency that really does a great job — make sure that individual depositors don’t run into problems. During every recession, some banks will fail. The FDIC is there to make sure your money doesn’t go down the drain along with it.
P.S. The image nearby is from http://tellingtimenyc.blogspot.com/. It’s a little tough to read, but check out the rates on those CD’s!!!