3 Warnings Signs Your Bank May Fail
Although optimists may argue that the worst of the credit crunch is behind us, I believe that there are still stormy seas ahead. Even JP Morgan’s own CEO, Jamie Dimon, states:
“Our expectation is for the economic environment to continue to be weak–and to likely get weaker–and for the capital markets to remain under stress.
So here we go, here are some signs that your bank may be in financial trouble.
1) Is your bank offering outlandishly high CD rates and savings rates?
Banks that offer high interest rates are desperate. All banks get a lot of their capital through brokered deposits. Professional money brokers are paid commission to go out and solicit deposits for the banks. HOWEVER, under Section 29 of the FDI Act, implemented by Part 337 of the FDIC Rules and Regulations, banks that are deemed “under-capitalized” by federal regulators are restricted from accepting brokered deposits. Instead, banks in trouble need to entice deposits from individuals by offering exceptionally high rates.
Banks that offer high interest rates are desperate. All banks get a lot of their capital through brokered deposits. Professional money brokers are paid commission to go out and solicit deposits for the banks. HOWEVER, under Section 29 of the FDI Act, implemented by Part 337 of the FDIC Rules and Regulations, banks that are deemed “under-capitalized” by federal regulators are restricted from accepting brokered deposits. Instead, banks in trouble need to entice deposits from individuals by offering exceptionally high rates.
2) Does your bank lend heavily in California, Florida, or Las Vegas?
These were the hottest real estate markets in the last few years, but what goes up must come down. These markets are now seeing huge declines in property value and increases in foreclosures. For example, PNC Bank is actually holding up quite well because they do not do business in these areas.
These were the hottest real estate markets in the last few years, but what goes up must come down. These markets are now seeing huge declines in property value and increases in foreclosures. For example, PNC Bank is actually holding up quite well because they do not do business in these areas.
3) Is your bank being slaughtered on the stock market?
Institutional stock traders, mutual funds, and hedge funds know what they doing. They pay analysts heaps of money to review balance sheets of banks.
Institutional stock traders, mutual funds, and hedge funds know what they doing. They pay analysts heaps of money to review balance sheets of banks.
Indymac Bank Is a Prime (pun intended) Example
About a week before they went under, I did a story pointing out that Indymac Bancorp had become a penny stock. Indymac was offering an exceptionally high 4.45% APY 1 year CD at that time as well. Oh, and to make things worse, Indymac’s core business was financing ALT-A home loans in California! TRIPLE WHAMMY.
About a week before they went under, I did a story pointing out that Indymac Bancorp had become a penny stock. Indymac was offering an exceptionally high 4.45% APY 1 year CD at that time as well. Oh, and to make things worse, Indymac’s core business was financing ALT-A home loans in California! TRIPLE WHAMMY.
Credit: Bankaholic
