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Bank Failure Predictions and the Texas Ratio

Friday may become a busy day for me if the predictions in this MarketWatch article come true. It's another article covering the expectations that we'll soon see a surge of bank failures. Since the FDIC typically closes banks on Friday, you might see many Friday bank closure posts like the one I did two weeks ago.

I've posted on a few of these types of articles before, but this MarketWatch article has some info I haven't read before such as the Texas Ratio. This is an early-warning system for spotting future trouble at banks. When the Texas Ratio is over 100%, the banks are in a precarious position. The article mentioned IndyMac Bancorp having a Texas Ratio of 140% and Corus Bank having a ratio of 70% which is up from 9.1% in 2006.

Only 3 banks have failed this year, but experts are "expecting a surge of failures as the credit crunch slows economic growth and hammers some lenders that grew too fast during the recent real-estate boom .... At least 150 banks will fail in the U.S. during the next two to three years, according to a projection by Gerard Cassidy and his colleagues at RBC Capital Markets."

The projected failures are still rather low when you consider there are over 9,000 banks in the US (source). Hopefully, it won't get as bad as the S&L crisis in the 1980's and early 1990's when almost 3,000 banks and thrifts failed (Calculated Risk has many stats of past bank failures).

As I always recommend, make sure you stay under the FDIC limits. Please refer to this previous post for some useful links. You can go over $100K and still be FDIC insured, but you have to be careful. Please see this post on ANB Financial closure and this post for more details of extending FDIC and NCUA coverage above $100K.

Thanks to the reader who emailed me this news story.

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Derek   |     |   Comment #1
I wish we could find out the Texas Ratio of AARP Savings!

And all the other banks I either have my money in or will put my money in.
Anonymous   |     |   Comment #2
I'm sorry to say, but I'm over the FDIC insurance with AARP Jumbo MM. I went crazy with that 4.75% yield for liquid funds.

Today I added extra POD beneficiaries to my Joint account, but I'm still short by about $50K.

Banking Guy, or any other knowledgeable person, please find out the Texas Ratio of AARP Savings.
Anonymous   |     |   Comment #3
I have several CDs with Corus bank. Should I close them out to be safe? Or is it okay to wait it out?
Anonymous   |     |   Comment #4
Here's a dumb question: What do people with a lot of money do to protect themselves?

For example, if you have $900k in savings, do you open 9 accounts with $100k each?
Michael   |     |   Comment #5
the only dumb questions are the ones that are not asked.

You are perfectly safe putting more than $100K if you include qualifying beneficiaries and make sure your account is titled correctly.

If I had $900K I would put $300k in 3 great banks (Alliant CU is one example), and I would put 4 beneficiaries on the account: mom, sister, and two brothers.
Bozo   |     |   Comment #6
To: Anonymous with $900K

I echo Michael's comment. An easy way to get extra coverage is $100K CD for you, in your name, one for your wife (in her name) and one joint CD, for a total of $300K insurance. You can also increase coverage beyond that at the same institution, but why bother? Most jumbo CD specials are predicated on a minimum opening amount which seldom exceeds $100K.

Additionally, if the funds are in IRA accounts, note that the insurance is now $250K per account.

With a modest amount of research, I suspect you will be able to maximize both your returns and your coverage.


Bozo   |     |   Comment #7
PS: OK, I forgot to figure in the interest. You have to stay below $100K, principal and accrued interest, so it's less than $100K in the opening balance. But the concept is the same.
Anonymous   |     |   Comment #8
Re: "What do people with a lot of money do to protect themselves?"

Diversify. So far nobody has ever lost principal from an FDIC insured bank. And multi-millionaires have more money in Treasury bonds than in bank accounts, with the added feature that TBonds are state/city tax free.
Anonymous   |     |   Comment #9
In a credit union, are joint accounts insured to 100K or 200k?
Pete Crane
Pete Crane   |     |   Comment #10
The best way to protect yourself is to not get greedy. Accidents alwways happen out on the "bleeding edge" so you want to leave a little interest on the table for safety's sake.
Pete Crane
Money Fund Intelligence
Still Sofa King Frustrated
Still Sofa King Frustrated   |     |   Comment #11
Well, people, I guess we don't have to doubt the legitimacy of AARP Savings anymore.

If you sign up today for a Jumbo MMA, you will only get 3.93%, with an APY of 4.05%.

If you signed up prior to today, you are still getting that 4.75% APY, but this is only temporary. Maybe for a month? The reason is, they got a huge amount of sign-ups this month of May, and they know if they drop the rate for all of these new accounts in just a few weeks after opening, there would be a mass exodus. Why? Because you can now get the same 3.93% from a few other banks and credit unions...and you wouldn't have to deal with a middleman like Waterfield or Affinity!

Watch AARP's sign-up rate to now plummet.

And I urge all depositors who signed up this month prior to 5/24: when our account also drops to 4.05% APY, we all need to bank hop over to perhaps Alliant CU or another bank paying a similar rate, which might show AARP Savings that they just shouldn't have dropped the rate so soon.

Who is with me?
Sal   |     |   Comment #12
No longer necessary to find out the Texas Ratio of AARP Savings.

They lowered their rate to 3.97%, with an APY of 4.05%.

Waterfield manages many bank accounts, as you know, and every single one of them except AARP has a rate lower than 3.97%, so look for the AARP rate to continue to drop.

No one should now open a AARP account since dealing with an unknown middleman is not worth it if your rate is equal to a bank or credit union that offers the same rate or more.
Anonymous   |     |   Comment #13
...if you have $900k in savings, do you open 9 accounts with $100k each?

Anonymous   |     |   Comment #14
Anyone have any experience with CDARS? Worthwhile service?
Anonymous   |     |   Comment #15
I believe the FDIC insurance provided by AARP Financial Savings is provided either by Huntington National Bank or Countrywide Financial. You can contact a CSR at AARP Fin Savings to find out who is providing your insurance. I asked that my account be placed with Huntington as I already had a CD at Countrywide. They accomodated this request.
Anonymous   |     |   Comment #16
Here's a good link for FDIC Insurance details: