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Most Banks Are Probably Still In Good Shape

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Sep 15, 2008 8:16 pm US/Mountain

Most Banks Are Probably Still In Good Shape

Good Question: Is My Bank Safe?

Written By Alan Gionet
Reporting
Alan Gionet
DENVER (CBS4) ― The American financial system is in turmoil. The Dow was down more than 4 percent of its value Monday. The once stout Lehman Brothers into bankruptcy. Merrill Lynch flying into the arms of Bank of America. It's enough to get you worried.

"Absolutely," said one man downtown. "Because there's nobody that's on this planet that's perfect."

Not really, but for most part, your deposits with your local bank are perfectly safe. That means insured by the federal government, not a private firm that could (potentially) go under itself. You've heard of the Federal Deposit Insurance Corporation. You've seen the signs at the teller line in the banks and credit unions. That's the first thing to check for.

"It's important to draw a distinction between the investment-type banks that we've seen in the news recently and actual traditional historical banks that are FDIC insured," said Colorado Bankers Association senior vice president Jenifer Saltzman.

Here's the difference, according to University of Denver Daniels College of Business professor and co-director Ronald Rizzuto.

"A commercial bank was primarily available for taking deposits from individuals and then lending out to businesses and individuals. So you can go get a home loan, you can get a small business loan from a bank the commercial bank ... an investment bank is primarily in the business of helping companies raise capital as well as initiate mergers and acquisition agreements, so they're more of a transaction firm rather than a deposit taking firm," he said.

Lehman is, or was, an investment bank. Ten banks have gone under around the country this year. More than 100 more are listed as "troubled." Saltzman says Colorado banks are in better shape with their capital on average than the nationwide average.

Still, when banks go under, the FDIC might have to pick up the tab, and it does.

"What they'll do is they'll engineer a merger of the bank into a healthy bank and then the healthy bank will take over the good assets and then the Federal Reserve, FDIC, will take over the bad assets and they'll package them up, sell them off to get what they can for them," Rizzuto said.

The feds would make up the difference, so your insured account would remain whole.

Things can be different if you have a retirement account through your bank. Retirement accounts with certificates of deposit do get insured up to $250,000, because they're run by the bank. But there are other types of investments that would not be. For example, if your bank is the conduit to another entity that allows you to invest in the stock market. Stocks are never guaranteed, but no one can take away your ownership of them -- even if they tank so badly you'd just assume someone else did own them.

There's more information in the video story on the right.

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