There is no doubt the American banking industry currently resides in challenging times. And with recent news of our government’s actions to step in and gain control of current financial conditions, it’s no wonder consumers are expressing insecurities about the safety and soundness of their finances.
To add more worry to the situation, on the occasion that a bank may encounter large-scale problems or even fail, the terms and information communicated regarding the event may be confusing and, therefore, misconstrued. Allow me to clear the air with some insight into how banks continue to protect their customers’ deposits and a view of the banking industry as a whole.
The banking industry is comprised of traditional federally insured, federally regulated depository institutions, such as commercial banks and thrift or savings banks. For the most part, these financial institutions remain safe and secure. You’ve most likely heard the term “FDIC insured.”
The Federal Deposit Insurance Corp. is an organization that guarantees banking institutions with more than $52 billion in assets to protect depositories. Traditional commercial banks, thrifts and savings banks carry FDIC insurance. With that, your deposits in a federally insured bank are protected up to $100,000 with additional protection for joint accounts, and up to $250,000 for retirement accounts.
Another important piece to understand is the banking industry’s overall capital standing. According to the American Bankers Association, the banking industry’s capital resides at historic highs. The association most recently reported the industry at $1.35 trillion in capital, plus $144.3 billion in reserves.
So what are all the crisis headlines about? Multiple reports have focused on a subprime lending crisis throughout the industry as a whole, but tend to withhold mentioning that these subprime lending issues largely took place among unregulated institutions – not regulated, insured banks.
Additionally, reports of the recent challenges faced by such entities as Bear Stearns, Lehman Brothers, and Merrill Lynch failed to mention that those companies were not commercial banks or insured depository institutions – they were investment firms.
Our banking system continues to be one of the most highly regulated industries in the country offering a level of protection and oversight that did not exist even 25 years ago. State and federally regulated banks follow underwriting practices to avoid losses and promote safe and sound operations.
And in the event that a bank is not operating successfully, their regulators – who visit the institutions annually – will report it and require corrective action.
What to ask
As a consumer, you can obtain information to help alleviate concerns about your financial institution by asking a few simple questions:
• Is your bank defined as “well capitalized” by the FDIC?
• Are your bank’s nonperforming assets below the traditional benchmark of 1 percent of total assets?
• Is your bank profitable or is it sustaining losses?
• What is your bank’s loan-loss-reserve ratio?
At times when some facets of our financial system might be tested, rest assured that our nation’s banking industry has resilience and will come through these recent setbacks. Any challenges we are witnessing will pass, as they have in the past.
And at the end of it all, the lessons learned will pave the way for an even stronger financial system.
Kristy Weaver is senior vice president and Southwest Washington team leader for Pacific Continental Bank in Vancouver.
