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Wednesday, June 9, 2010

Myth: Banks are the safest place for your money

I hate to even go here because it sounds so crazy. 81 banks have failed so far this year (see Failed Banks). To put that number in perspective, it's almost 1/3 of bank failures since 2000 according to But here's the crazy part: Although the FDIC will tell us how many banks are on their watch list (775, last time I checked) they won't tell us the names of those banks, for fear of creating a self-fulfilling prophecy by freaking out depositors who will then take all their money out. The FDIC apparently would rather freak us out even more by secretly seizing our bank. Which we first find out about in the morning paper and all we can do then is spew coffee all over it.
What can we do now, though? Of indicators for bank weakness, the best is the "net charge-off rate", which is the percent of a bank's loans that the bank has given up on collecting. I can't take credit for any of this. See the excellent article at Bank.
How do you figure that out? Enter [drum roll] The Texas Ratio! According to Andy Obermueller's excellent article at the above link:
"The Texas ratio is determined by dividing the bank's non-performing assets by its tangible common equity and loan-loss reserves. Tangible common is equity capital less goodwill and intangibles. As the ratio approaches 1.0, the bank's risk of failure rises. Every bank that has failed in the second quarter has had a Texas ratio of greater than 0.90. In fact the average was about 5.0."

So here's what you've really been waiting to find out; the list of Oregon and Washington banks with risky "Texas" ratios (what's up with Washington banks??):

Oregon Banks
1.91 Albina Community Bank Portland
1.62 MBank Gresham
1.23 Bank of the Cascades Bend
1.16 LibertyBank Eugene
1.02 Home Valley Bank Cave Junction
0.97 Pacific West Bank West Linn

Washington Banks
3.13 Washington First International Bank Seattle
2.58 HomeStreet Bank Seattle
2.58 Seattle Bank Seattle
2.47 North County Bank Arlington
2.33 First Sound Bank Seattle
2.13 Shoreline Bank Shoreline
1.98 Regal Financial Bank Seattle
1.78 AmericanWest Bank Spokane
1.72 The Cowlitz Bank Longview
1.56 Viking Bank Seattle
1.46 Sterling Savings Bank Spokane
1.33 The Bank of Washington Lynnwood
1.20 First Heritage Bank Snohomish
1.16 Mountain Pacific Bank Everett
1.12 Business Bank Burlington
1.07 Bank of Whitman Colfax
1.04 Prime Pacific Bank, National Assn Lynnwood
0.99 Eastside Commercial Bank Bellevue
0.90 Cascade Bank Everett


  1. People open bank accounts for a wide variety of reasons, but the number one determinant seems to be location. Therefore, it is understandable that one may be upset that the account you opened at one bank's "convenient" location may suddenly become an account serviced by a new bank that acquires a failed institution.

    But what is the ramification of this? First, consumers have virtually no "down-time" in accessing their money or conducting their banking business at the new bank. Second, even if your bank does not fail, what is to stop it from being acquired as a result of normal merger and acquisition activity? Thus resulting in the same scenario?

    The answer is nothing: bank failures are nothing more than a government-coordinated merger with an acquiring bank -- and consumers who have taken simple precautions have little to fear from either a bank failure, or a normal merger.

    The reality is, this topic is a tempest in a teapot. There is very little disruption to your account if your bank fails, and with a little attention paid to how you title the ownership of your accounts, a family of three can easily have deposit insurance of $1 million or more -- thus protecting your money from any losses.

    Thankfully, common sense still rules. If you have questions about this, just ask your banker.

  2. Well, "anonymous", if this is a "tempest in a teapot" who needs the FDIC then?
    There is more to be concerned about than merely one's own accounts; what sort of institution, and management, do you want to support with your deposits? How much profit do you want siphoned out of your community?
    If you would rather keep your money working locally and also have closer tabs on the management, use a credit union.
    If you're looking for higher returns, principal protection, and guaranteed income, use insured investments like annuities. I do not understand why anyone would voluntarily use a bank.

  3. Credit unions are safer? Are you kidding?
    Quite a number of CU's have closed during this crisis alone, and the main reason that more have not is that the gov't doesn't allow CUs to make many Real Estate secured or business loans.
    However, CU's do "get in bed" with auto dealers and underwrite auto loans on a third party basis -- and the CU's who have been hard hit are those that did that more than the rest, or embraced the totally anti-credit union "community charter" method of membership.
    Bottom line: if it weren't for BANKS making loans to local businesses, you likely would not have a job.
    Open a BANK account at a LOCAL bank, and support your LOCAL economy in a way that no Credit Union ever will.
    (And that, dear Anonymous, is advice you can take to the BANK.)

  4. "Anonymous" must be a banker, do you think? The comment contains too many leaps of faith, non sequiturs & annecdotal "reasoning" for my taste. I've been with my credit union since 1978 & this recession wasn't even a blip on its balance sheet.
    But anonymous is right in one respect; it all depends on the people running the institution. However, if no banks existed, or if we just had one national bank, my occupation would be unaffected.


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