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Evaluating Bank Safety

EEE1
  |     |   2 posts since 2018

Hi.

I'm looking for the best means to evaluate bank safety ahead of another financial crisis along the lines of what happened 10 years ago. (For the sake of argument, let's assume this happens sometime in 2019; I'm looking to discus what defensive measures to take with CDs, savings, and MMAs.)

I'd like to put my money in a safe bank, but determining safety is proving tricky. I like the health reports available on this site; it's very useful, but I'd like to dig further.

The Texas Ratio looks at today's non-current loans. What happens, though, if it turns out that a large % of loans rapidly become non-current, for instance if ARM rates jump suddenly and catch a number of homeowners unprepared?

I'd like to see what kind of investments a bank lends to, in broad terms. For instance, what % goes into RE loans? Of those, how many are for primary residences vs. investment properties? How many are standard 15/30 yr fixed, and how many are ARMs or subprime? What metric would be good to use and is readily available to the general public?

I find the recent higher rates attractive but I want to weight those against the relative risk of the bank defaulting or failing.

Thanks in advance! This is a great site.

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EEE1
  |     |   2 posts since 2018
An additional comment:
In a recent interview, Harry Dent said he's taken his money out of banks entirely and put them into a brokerage account. I'm not sure I'd go that far, but his reasons were interesting. Even the safest bank he'd found invested heavily in real estate, and with a housing crash coming (in his analysis) there would be many bank failures. (Many bank account holders don't realize that the money in the account is technically not theirs, but are loans to the bank.)

Brokerage accounts, in contrast, don't lend money for real estate, period.

So that's one point of view: banks are more at risk today than brokerage accounts.
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RJM_Willy12
  |     |   149 posts since 2016
Harvey Dent is a cartoon character.

Of course brokerages invest in real estate. In all sorts of things.

The thing is, when you have money in a brokerage account, it is not being loaned to the brokerage. It is generally in what is called a money market fund.

And it is true, money market funds do not invest directly invest in real estate. They invest in other fixed income securities.

So, that is one difference between bank accounts and money market funds. Another is that only one is guaranteed by the Treasury.
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