FDIC shields most bank customers against losses

By David Milstead, Rocky Mountain News (Contact)

Published July 15, 2008 at 9:05 p.m.

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From the collapses of Bear Stearns and IndyMac to the teetering Fannie Mae and Freddie Mac, big financial failures are causing people to wonder if their money is safe.

While more banks may fail, including some that operate in Colorado, most customers should be protected by the Federal Deposit Insurance Corp., a federal agency which covers amounts up to $100,000.

Here's how it works:

* If a depositor's accounts at one FDIC-insured bank or savings association total $100,000 or less, the deposits are fully insured.

* A depositor can have more than $100,000 at one insured bank or savings association and still be fully insured in certain situations, like co-owning an account with a spouse or other person, or having a trust account.

* Certain retirement accounts like IRAs are insured up to $250,000 per owner, per insured bank.

"For sure, the federal deposit insurance system is out there to protect depositors in banks and thrifts," said Larry Martin, a Denver banking consultant. "What is different now is the regulators, much to the bane of the banks and thrifts, have taken a much tougher, more proactive stance to regulation and have identified problems sooner and are making banks take steps to a safer and sound situation."

At March 31, "noncurrent loans," in which payment has fallen 90 days behind schedule, were 1.46 percent of total loans for Colorado-based banks, up from 0.92 percent a year earlier. The figures include data from commercial banks based in Colorado, whether regulated by national or state officials, but do not include out-of-state banks like Wachovia.

"We have seen some increases in problem assets and problem loans," said Richard Fulkerson, the state banking commissioner, who regulates just state-chartered banks. "We have a small percentage of institutions we're working with, but I don't see a failure threat from any state-chartered Colorado bank at this time. The overall Colorado banking industry remains strongly capitalized and well positioned to handle any economic downturns."

Bear Stearns was an investment bank, not a bank or savings association with insured deposits. But its failure in March, when the Federal Reserve stepped in and brokered a sale of the company to JPMorgan Chase & Co., first made many Americans aware of the scope of the damage to the financial system.

While other small institutions have failed since, the collapse Friday of $32 billion IndyMac Bank ranked as one of the all-time biggest failures of an insured institution.

That news came during a week that regulators and politicians actively discussed what to do with Freddie Mac and Fannie Mae, two gigantic home-lending companies with an implicit government guarantee. All of those institutions bet the bank, so to speak, on mortgages, which have become a financial black hole as the American real-estate market has cratered.

Two sizable financial institutions with Colorado operations are also being dragged down in the morass:

* Washington Mutual, or WaMu, is a mortgage lender that has seen its stock fall more than 90 percent from its 52-week high. The savings and loan also has more than three dozen Colorado branches and about $500 million in deposits.

* Wachovia, which has 34 offices and $5.5 billion in deposits in Colorado, is getting hammered due to its exposure to adjustable-rate mortgages it got by buying California-based World Savings Bank. It's down 83 percent from its 52-week high, hitting a 52-week low Tuesday.

But in recent days, investors have feared that the banking contagion will spread to banks that haven't saddled their balance sheets with mortgage loans. Publicly traded Colorado banks like CoBiz Financial and United Western Bancorp hit 52-week lows Tuesday.

What to look for

To check whether a bank or savings association is insured by the FDIC:

* Call toll-free at 1-877-275-3342

* Use "Bank Find" at fdic.gov/deposit/index

* Look for the FDIC official teller sign where deposits are received.

• July 16, 2008

  6:03 a.m.

  Suggest removal

  LOUIE writes:

  You can believe in the government bailout if you want to; America's banks are going bust and that's only the beginning. Niether one of the two canidates are stong when it comes to economic issues, both are quite weak. Forget about a recession, America needs to start worrying about a depression. Inflation is coming big time, the government can't bail it all out, without destroying it's own currency by printing cash like it's going out of style. Print enough currency and soon it becomes worthless; Germany did the same thing before the great war. You could have a wheelbarrel of those worthless marks, and you still had nothing. I love when people tell me it can't happen, the government has safegaurds; somebody is a good salesman. Major industries are collapsing, your banks are all but bust, and the government is here to save the day with a bailout. Now we have two who want to be president and both have no economic skills; sorry if I lose a little confidence folks. Get those inflationary presses rolling, it's going to cost the government a lot. Silver reserves are already gone, gold reserves are real low, platinum is stategically controlled, oil and energy through the roof, taxes are on the rise, bank are all but broke, major industry is laying off, it's going to be fun for sure. See some of us have planned for this day for years, we are waitting to make our fortunes. I schooled under the best...

• July 16, 2008

  8:34 a.m.

  Suggest removal

  jbowen43 writes:

  I hope you all remember all those repuglicans that told you that "all we need to do is get government off the backs of business and then watch out. Things will be great. Well they got the regulators out of the way and the results are coming in. You're getting your payoff.

• July 16, 2008

  9:34 a.m.

  Suggest removal

  athought writes:

  Yes, the GOP is to blame for people going out and spending like the drunken whinos in Congress. The housing market is still way out of whack and first time homebuyers (the base of this great American pyramid scheme) are priced out. We won't have a depression unless we elect some boob who thinks that free trade is bad and the US shouldn't get discounts for buying Mexican or Canadian crude under NAFTA. The Smoot-Hawley Tarrif Act turned a recession into a depression, not the other way around.

• July 16, 2008

  4:16 p.m.

  Suggest removal

  DougH writes:

  Have to agree with Jbowen, We have all bought into the great Liaise Faire economic system and the big lie that Free Trade will be our salvation. As usual it is not free and as usual the banks want the government to bail them out.
  The country has been a victim of a giant B.S. campaign telling us how great de-regulation is while businesses and investors are picking our pockets clean.

  Why is it that when there are profits to be made, then it is free trade and when there are losses, then the government has to take care of the problem. Ed Stein’s cartoon in today’s Rocky spells it out exactly.

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