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Interesting Facts about NetBank's Closure

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As I reported on Friday, the FDIC took over NetBank on Friday sold off its deposits to ING Direct. There has been several new articles in the last few days on this. According to this Wall Street Journal article, "NetBank is the biggest failure since the June 1993 failure of Western FSB, Marina del Rey, Calif., which held $3.8 billion in assets."

CNN reported on a small business that had about $1 million in deposits in a NetBank account. Only $100K was FDIC insured. Seems like the business owner should have been more careful. According to this FDIC Q&A, the business should be able to expect at least 50% of the uninsured deposits back.

Since NetBank was based in the Atlanta area, The Atlanta Journal Constitution newspaper has had several articles on this. Here's a timeline of NetBank's history. According to this AJC article, NetBank is Georgia's largest failed bank (with about $2.5 billion in total assets), and it was the 58th-largest U.S. bank failure.

The FDIC has a list of recent bank failures. A reader pointed out that in 2002, NextBank was another internet-only bank that failed. So NetBank isn't the first. It's interesting how similar the names are.

I found it interesting that the Wall Street Journal article blamed the NetBank sign-up bonuses and high interest rates as part of the reasons for the problems:
NetBank's model relied on paying high interest rates and $50 signing bonuses on core deposits such as savings accounts to entice customers. It was a costly way to attract deposits that are relatively easy to come by at brick-and-mortar banks. Constrained by the model, the company diversified into riskier but potentially lucrative subprime loans but, according to federal regulators, was undone by its sloppy underwriting.

They did have nice bonuses, but the money market and checking interest rates were low compared to other internet banks.

A reader commented in my last NetBank post how he just recently receieved the two $75 bonuses with the last one being credited to his account late last week. So it's nice to see NetBank followed through on these all the way to its closure. For those who haven't received these bonuses yet, I have no idea what your chances are in receiving credit now.

For all the official information on this NetBank closure, please refer to this FDIC page.

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Comments
9 comments.
Comment #1 by 8j (anonymous) posted on
8j
Netbank might not provide the best online saving APR, but its own cost of borrowing should be also higher than those big names. So it is risky for Netbank even to keep the decent saving rate if not great.

1
Comment #2 by djc314 (anonymous) posted on
djc314
This closure seemed to happen quite quickly. Is there a way for us to have seen this coming? And are there other banks that we see recommended on this site next?

I know it is our responsiblity to ascertain the strength of our bank and I do utilize bankrate and baur but just wonder if we missed major signs of this coming and hopefully catch the ones that may be next for the other veiwers of this great site!

Might be a nice thing to add to your opening front page of the "be very careful" places to deposit savings....

Of course, it is always in your best interest not to be too gready on a great rate and go over the FDIC protection....

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Comment #3 by Anonymous posted on
Anonymous
In its press releases about the deal they were trying to work with Everbank, Netbank stated that its primary regulator had ordered it to wrap up its operations. In the press release after Everbank back out of the deal, Netbank said it was working with its regulator to find an alternate partner. If they weren't in financial trouble, their regulator wouldn't have been pushing them to get out of the banking business.

Then later Netbank stock was delisted from the NASDAQ and its share price plummeted.

It was very obvious that Netbank wasn't very long for this world.

But for people who were within the FDIC limits, this was basically a non-event. They went to sleep Thursday night with accounts at Netbank and woke up Friday morning with accounts at Ing Bank. Checks still work, ATM cards still work, all your money is still there.

Bank regulators never announce in advance that they are going to close a bank. Doing so would cause a run on the bank which would cause it to have to shut down immediately, so there is no point in announcing in advance.

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Comment #4 by Anonymous posted on
Anonymous
If you check Netbank's stocks you will notice that the bank was in big trouble since may, the marked predicted this months ago. The stock price is a good way to predict the strength of a bank.

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Comment #5 by Anonymous posted on
Anonymous
I would think that most people who had a checking account with NetBank also had a Money Market Account, which is not FDIC insured.

Luckily, I didn't have very much money in mine and I was able to transfer it. I've got a post about it at ThePropertyPundit.com.

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Comment #6 by Banking Guy (anonymous) posted on
Banking Guy
NetBank had what is called a money market account which is officially known as a money market deposit account.

It's confusing, but that is different than a money market fund which is not FDIC insured.

Here's more info from the FDIC:

Banks also may offer what is called a money market deposit account, which earns interest at a rate set by the bank and usually limits the customer to a certain number of transactions within a stated time period. All of these types of accounts generally are insured by the FDIC up to the legal limit of $100,000 and sometimes even more for special kinds of accounts or ownership categories.

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Comment #7 by Anonymous posted on
Anonymous
Received: 10/05/2007 09:51 AM ET
Expires: 12/04/2007
Account Reference:
Subject: Account Information


Message:
==============================================================
Please include the following line in any e-mail correspondence
regarding this issue: Contact number: Netbank
==============================================================

Dear xxxx xxxxx,

Thank you for contacting ING DIRECT (formerly known as NetBank).

On September 28th, ING DIRECT acquired NetBank's personal and business savings, checking, IRAs and CD Customers.

ING DIRECT has reviewed all promotions offered by NetBank. While reviewing the transition of NetBank accounts to ING DIRECT, we have decided not to continue providing promotional rewards. Therefore, we are unable to award bonus to your accounts).

We apologize for the inconvenience. Should you need further assistance, please feel free to contact us.

Sincerely,

Marcus
Promotion Division
Phone: 888-256-6932; Fax: 770-343-6464

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Comment #8 by Kyle (anonymous) posted on
Kyle
Thanks for the info banking guy! That is good news... although they haven't credited me my earned interest yet.

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