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Impact of Ally's Stress Test Failure on Ally Bank?

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Ally Bank

Ally Financial was one of four banks that failed the latest round of bank stress tests. The Federal Reserve announced the results of the stress test on Tuesday. 19 complex bank holding companies were evaluated by the stress test. Ally was one of four that failed. The other three are Citigroup, SunTrust and MetLife. According to AP via the Daily Herald:

Ally Financial Inc., the former GMAC Bank, was the worst performing bank in the Fed’s test. The U.S. Treasury still owns 74 percent of the bank. Ally protested the Fed’s stress tests, saying that the analysis overstated the potential mortgage risk in its portfolios.

You can read Ally's response to the stress test in this press release.

So how might this affect Ally Bank customers. This Reuters article looked into the question and had this to say:

The stress tests over the past several years have prompted regulators to require higher levels of capital from banks, and there are a multitude of ways banks can build capital cushions, such as shedding non-core assets, or boosting earnings through things like additional fee income.

Since Ally Bank's main marketing emphasis is the lack of fees, I don't seem them raising fees. One possibility that I think is more likely is Ally Financial selling Ally Bank. In February, Reuters reported:

Ally Financial is weighing a sale of all or part of its auto lending and banking businesses as an initial public offering looks increasingly remote and the U.S. government seeks to recoup some $17 billion in bailout money, sources familiar with the situation said.

It would be worrisome if some megabank acquired Ally Bank.

If Ally Bank stays with Ally Financial, Ally Bank customers may not see any direct consequence of this stress test failure. There may be some indirect consequences. With Ally continuing to be primarily owned by the government, Ally Bank may still be required to meet the FDIC rate restrictions. In 2009 the WSJ reported that the FDIC was requiring Ally Bank to keep deposit rates low enough so the bank wasn't one of the top 5 rate payers as measured by Bankrate.com. If you have followed Ally rates over the years, you probably have noticed that they have never been on top, but they have always been competitive.

As with any bank, it's always best to remain under the FDIC coverage limits. Ally Bank makes it easy to add POD or ITF beneficiaries to your accounts which can allow you to go above the standard $250K limit. If you are depending on beneficiaries to extend your FDIC coverage, it's important that the bank sets the POD up correctly. One FDIC requirement is that POD or ITF specification is in the account title. When you’re logged into your Ally Bank account, you can view the details of each account in a separate page. That page has an account title field. In my experience with Ally, your beneficiaries won’t be listed by default in this account title field. If you call or use the secure email, Ally can have your beneficiaries listed in the account title field with the POD or ITF designation.

I have more details of Ally Bank, beneficiaries and FDIC coverage in my post Maximizing Your FDIC Coverage with Beneficiaries.


  Tags: Ally Bank

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Comments
27 Comments.
Comment #1 by Anonymous posted on
Anonymous
Just the bad news may scare people away from Ally.  I have one CD with them.  GE is in the process of buying Metlife bank.  Maybe Ally will spin off the bank.  That may cause the new owner not to honor current rates or terms

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Comment #2 by Anonymous posted on
Anonymous
I wouldn't be concerned with the rates, unless they fail.  I would be concerned about the terms, however what ally customers bought was under the ally terms and conditions so they "should" hold.

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Comment #3 by Apache posted on
Apache
Wouldn't your think if Ally is a "problem" bank that Bankrate which is usually stricter on ratings than most others would not be giving it a 5 Star Superior rating?  I also checked Ally's financial numbers and could not find this information which the Feds are using to put Ally in such a problem spot.  I do hope Ally makes their case with them and gets them to improve their rating.

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Comment #22 by Tom (anonymous) posted on
Tom
#3, #11:

You misunderstand what a stress test is.

A stress test determines whether a bank has sufficient capital in situations of stress, i.e., if a certain percentage of their loans blow up.

Bankrate calculates capital adequacy metrics using the bank's reported numbers, i.e., without adding any stress.  The fact that Ally has a good Bankrate rating simply means that it would be well-capitalized if management is telling the truth on the balance sheet.

The Fed's stress tests weren't that stressful -- several troubled banks passed.  The fact that Ally failed even a watered-down stress test means that its balance sheet is ... how shall we put it ... optimistic.

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Comment #4 by Anonymous posted on
Anonymous
I agree, I got a bunch of high yield ally cd's a few years ago and they have about 3 years to mature.  I wonder if they will honor their terms if interest rates start shooting straight up?  Gives me another reason to consider cheating on my taxes and not feeling guilty.

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Comment #5 by Kaight posted on
Kaight
#4:

 

Understood.

But I'm betting you really do not need another reason.

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Comment #6 by shraz (anonymous) posted on
shraz
Ally is my favorite online bank

easy to open savings, cds, checking and they don't have crazy fees!

I hope they get back on their feet

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Comment #7 by Anonymous posted on
Anonymous
Thank you so much for this info.  I logged into my account and sent a secure email to Ally, asking them to add my beneficiaries to each account title field (1 savings and 4 CDs), and it was done within twenty minutes of my email to them.  

I have a business checking account with BOFA. My son and I went to the bank and signed paperwork for him to be POA on my account.  If you read the fine print for their POA agreement, it's an incredible Catch-22, where they actually say they may not even honor it!  I hate that bank, but there aren't any credit unions in my town that accept business accounts, and I do want a local bank for my business affairs. All my disposable income is at Ally or in IRAs.  But dealing with BOFA is just one insult after another.  If you can see the link to the POA terms, this is what I mean:

https://www2.bankofamerica.com/efulfillmentODAO/new_window_np.cfm?appURL=https://www2.bankofamerica.com/efulfillment/&showdaddoc=05-11-2000ED&daddoc2use=20110805&type=1&view=htm#20r

Thanks again for being such a valuable resource for all of us!!

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Comment #8 by Anonymous posted on
Anonymous
I use Ally Bank as a hub. I hope they don't mess this up!

2
Comment #9 by throttleplate (anonymous) posted on
throttleplate
i use them for my hub also,so just in case i added another bank accnt to my credit cards payments list,i was only using ally at the time so just covering my bases.

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Comment #10 by 51hh posted on
51hh
I have tons of RCA traffic going through Ally hub every month; needs to change it to Alliant if Ally changes in any ways...

That would be a real pain.  I will figure it out when I reach that stage...

I will think about it tomorrow:D

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Comment #11 by Anonymous posted on
Anonymous
Ally has great rates and I've always received superior customer service when opening/inquiring about my account.  I don't really understand the assumptions that were used in the FED stress tests but their capital levels appear to be "top of the class" according to bankrate.com (see below).

Key measures of Capital Adequacy:

Ratio (%)AssessmentNet Worth to Total Assets16.03 = Well Above Peer Norm

Regulatory Capital Ratio19.61 = Substantially Exceeded Requirement

Read more: Bankrate.com Safe & Sound (tm) Bank, Thrift and Credit Union rating feature http://www.bankrate.com/rates/safe-sound/memorandums-memos.aspx?fedid=3284070#ixzz1pHuLLOai

Maybe I'm missing something.  If so, please let me know.  Thanks!

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Comment #12 by Anonymous posted on
Anonymous
My POD beneficaries are listed for all my accounts in the title page.

2
Comment #13 by Apache posted on
Apache
I have had certain banks tell me their computer programs don't let them list PODs in the title of the CD.  Instead there is a place on the back of the page which denotes who the POD or beneficiary is.  They insist that there is no problem doing it this way as long as the name is listed in the correct place.  I had heard that the POD name should be next to the owner's name but not all banks are following this procedure.  This is why I keep copies of all the CDs and make sure a copy is available for the beneficiary to have for proof when needed. 

3
Comment #15 by Anonymous posted on
Anonymous
Ken or anyone ... if Ally were acquired by a megabank, what does the law say regarding the terms of the CD's so many of us have?

Specifically, would the new bank be able to (1) lower the interest rates, or (2) change the early withdrawal terms?

1
Comment #16 by Apache posted on
Apache
#15  It's a known fact (or should be) by all CD purchasers that if "any" bank fails and has to be purchased by another bank, "they" have the right to lower all CD rates if they want to or they can give you the option of taking your CDs out and going to another bank.  I don't think they can charge you an early withdrawal penalty if you decide to withdraw under these circumstances.  I had one of my local banks fail over a year ago and they had given us great rates before the failure.  The bank that purchased them is another local bank which is known for it's low rates but somehow they allowed us to  keep the same rates which made us very happy.  However, now that the CDs are maturing, I have taken them to other banks where I can get a bit better rate.  One has to do what is best for themselves.

In cases of bank failures, you should not lose any of your "insured" deposits.  That is why Ken has urged us to make sure "all" our deposits are insured and we don't go over the limit.  We can't protect the interest rates.  That is up to the acquirer to decide what they want to do.

 

2
Comment #17 by Apache posted on
Apache
#15  I forgot to add that I think the acquiring bank can change the Disclosures for the CDs which includes the rates and Early Withdrawal Penalties to be the same as those they already have.  They just can't charge you an EWP if you decide to take the option to leave the new bank and go someplace else at this time.  This has been my experience and if any one else knows anything different, I hope they will share.

1
Comment #18 by Shorebreak posted on
Shorebreak
 http://globaleconomicanalysis.blogspot.com/2012/03/stress-test-farce-shows-bank-shares.html

1
Comment #19 by Anonymous posted on
Anonymous
My advice: run.

4
Comment #20 by Apache posted on
Apache
#19:  Run "where"?

2
Comment #21 by Anonymous posted on
Anonymous
"My advice: run."

My advice: dumb.

2
Comment #23 by Anonymous posted on
Anonymous
I had an online savings account and a no-penalty CD with Ally until a few days ago. The disturbing news concerning the huge failure of Ally bank to satisfy the government's stress tests, sent me scurrying for the exit doors.  A bit premature, perhaps, but it is better to be safe than sorry.  I will miss the attractive rates on CD's and online savings accounts.  I think their computer system and website are outstanding.  I also had several live chat sessions, which I found to be a neat alternative to the telephone.  

2
Comment #24 by Robert (anonymous) posted on
Robert
I just got a CD maturity notice (no-penalty CD) from Ally.  They are still offering the 0.25% loyalty bonus.  0.25% in an absolute sense isn't much, but now-a-days, it's a significant boost given that rates are so low.  I wonder if Ally would allow this: I open a small 3-month CD, and when it matures, will they offer the 0.25% bonus if I convert it to a no-penalty CD or a 5-year CD and put in a greater amount of money?  Has anyone tried this?

2
Comment #25 by Anonymous posted on
Anonymous
Ally Bank is so awesome!  I used to have a credit union and Ally is my first bank.  From the horror stories about other banks and the RUDENESS of the clerks when I cashed a personal check made out to me by a more well-off friend once-- I will bury my money in a hole in the ground before I go to another bank!!!!  The real "stress test" isn't about "a" bank failing.  They are missing the point.  There was indeed a stress test of the banking system and the whole **** thing failed in the trust-o-meter of the public.

3
Comment #26 by Anonymous posted on
Anonymous
Ally Bank is definitely still a shady bank.  Trusting the FDIC insurance coverage, I opened up a 1 yr. IRA CD in April 2012 with interest supposedly compounded daily.  Much to my chagrin, when I received my first statement, no interest whatsoever was posted.  When I questioned the bank, they indicated that the interest had indeed accrued, but that it wouldn't be post until maturity.  I'm not sure that this practice is legal, but I have no recourse.  It should be illegal if it's not.  I will definitely not be renewing my CD come April 2013 as I no longer have faith in the institution.  According to the federal government, Ally Bank was the worst performing bank of 2011-2012 in the country.  That should speak volumes.  I just hope I can get my money out before it fails and creates a headache retrieving the money from the FDIC.

1
Comment #27 by Anonymous67 (anonymous) posted on
Anonymous67
From above "When I questioned the bank, they indicated that the interest had indeed accrued, but that it wouldn't be post until maturity. "

 

Isn't a CD interest yours only after maturity?

Just a question from a newbie.

1
Comment #28 by Anonymous posted on
Anonymous
Anon#27 is correct, interest in this type of CD accrues (and is taxable in the year earned) but is not paid out until maturity. Anon#26 is ranting cluelessly.

1