Dedicated to Deposits: Deals, Data, and Discussion

Causes of Guaranty Bank's Problems and an Unofficial Bank Problem List

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Update: It's now official: Guaranty Bank closed by the OTS (FDIC press release). I'll have more on this and all of today's bank failures in a new post this evening.

The FDIC hasn't been doing a good job at keeping secret pending closures of large banks. Before Colonial Bank was closed last week, news reports of the pending closure and takeover by BB&T were widespread. The same situation is now occuring in regards to Guaranty Bank. News reports of BBVA winning the bidding process for Guaranty Bank's assets came out on Wednesday. We'll see later this afternoon if Guaranty Bank is shut down.

This WSJ article makes the claim that Guaranty's main problem was the mortgage-backed securities that Guaranty had bought from 2005 to 2007:
Guaranty's woes were caused by its investment portfolio, stuffed with deteriorating securities created from pools of mortgages originated by some of the nation's worst lenders.

However, as this CNN article described, it also had other major issues:
Option adjustable rate mortgages make up almost a third of Guaranty's single family mortgage portfolio, according to investor presentations on Guaranty's Web site. Option ARMs figured prominently in the WaMu and IndyMac failures as well.

Guaranty also had $1.2 billion of loans to homebuilders, primarily in the overbuilt California market. Guaranty made some headlines this spring when it bulldozed 16 houses in foreclosure in an abandoned development in Victorville, Calif.

I wouldn't be surprised if today is another busy Friday for the FDIC. The pace of bank closures seems to be picking up. Before today, there have been 77 bank closures this year compared to just 25 for all of last year. In most of this year's failures, the FDIC has been able to arrange for another bank to assume all deposits of the failed bank. So in most cases, no depositors lost any money. However, in many cases, depositors had their existing CD rates lowered by the new banks. Depositors were free to make a penalty-free early withdrawal, but that doesn't help much in today's low interst rate environment. As in the case of Mutual Bank's closure, it can be painful to have your CD rates cut.

Unofficial Problem Bank List

Calculated Risk has come up with its own unofficial problem bank list which includes regulators' enforcement actions.

With the risk of having your CD rates cut, it does make sense to pay attention to the health of the banks when you're shopping for CDs. The FDIC keeps its list of problem banks secret. Other resources that can help include BankRate.com and BauerFinancial which can give you some idea of the health of a bank. However, it's important to note that these ratings are based on data that's several months old.


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Comments
8 Comments.
Comment #1 by Bozo (anonymous) posted on
Bozo
To: All
Re: One solution

Just keep it spread around, and always under FDIC or NCUA limits.

Just a thought.

Bozo

1
Comment #2 by Anonymous posted on
Anonymous
I think its actually a good strategy in this environment to go for highest yielding CDs at lower rated banks. If, over time, your bank is taken over and new-bank decides to cut your APY before the end of your CD term, you will likely be able to cash out and move into a still higher yielding CD at anoher bank. Reason: yields will be going up in the coming years.

1
Comment #3 by Anonymous posted on
Anonymous
"yields will be going up in the coming years"

Maybe, but for how long?
Interest rates were going UP a year and a half ago. Look where they are now!

1
Comment #4 by Anonymous posted on
Anonymous
I bet we are a year or more away from rising interest rates, and even then it's going to be a slow rise. Until then, expect things to keep going lower.

1
Comment #5 by Bozo (anonymous) posted on
Bozo
Cash is the ultimate hedge, if FDIC or NCUA insured. Even with the horrid interest rates currently paid, your principal is "intact", as it were. I assume you've got some other assets out there. How have they done the past year or so?

I never whine about my CDs.

Bozo

1
Comment #6 by Anonymous posted on
Anonymous
Are there any impacts to have a reward checking account with such problematic banks; e.g., loss of some interest for transition, time/effort/anxiety to move funds out in case of closure? Thanks.

1
Comment #7 by Anonymous posted on
Anonymous
To: Bozo
Re: One solution

I guess there's a reason you go by "Bozo."

Spreading your money around is not a solution to anything. All you're doing is increasing your chances have sticking your money in a failing institution and making things unnecessarily complicated.

If you stay under the insurance limits, the only thing that you have to worry about is not being able to access your money on some future Saturday. If you can't plan far enough ahead to make it through the weekend without pulling money out of your bank, reconsider your spending habits.

If the possibility of your bank failing really bothers you, then you can work around this by simply banking at an institution that has already been seized and sold by the FDIC.

In the future, Bozo, you may wish to think about your "thoughts" before posting them here, rather than opening your mouth and removing all doubt....

1
Comment #8 by Anonymous posted on
Anonymous
What if Bozo has a few million in savings that he HAS to spread around to keep under the limits instead of in one bank...

1