4 things you should know about banks

The U.S. banking industry, reeling from the real estate crash and deepening recession, is facing its biggest crisis in generations. Stock prices plunged again Monday and losses are mounting, with the looming prospect of more government intervention. For consumers, it’s been a scary and confusing ride, raising new questions about bank safety and security.

Q: How safe is the money in my bank account?

A: So far, no banking customers have lost any of their deposits during the crisis. Deposits at failed banks have been purchased by another bank or, in rare instances, returned to customers. Nationwide, 40 banks have failed over the past year, including six in Georgia, compared to three in all of 2007. Most have been small community banks, but the failures have strained the coffers at the Federal Deposit Insurance Corp., which recently moved to raise an additional $15 billion by boosting the fees it charges banks.

Q: How does FDIC insurance work?

A: Historically, deposits of up to $100,000 have been insured by the FDIC, covering everything from checking and savings accounts to CDs. Last year, the FDIC agreed to boost the limit to $250,000 through the end of 2009. Individual retirement accounts already had that protection.

The insurance means that if you have less than $250,000 in an account, you’ll get your money back even if the bank fails and no buyer can be found for the deposits — at least as long as there’s money in the FDIC insurance fund.

Q: Would I be better off taking my money out and, say, sticking it under the proverbial mattress?

A: Taking cash out is a pretty drastic move. The money could be easily lost or stolen, and no matter how fancy your mattress, it’s not going to give you any interest. Other investment opportunities, like stocks and real estate, aren’t doing too well at the moment, either.

Q: How can I find out how well my bank is doing?

A: Bank finance is complicated, and even highly paid analysts often disagree on the direction any particular bank is heading. But if you’re curious, plenty of information is available on the Internet.

The FDIC, in particular, has gobs of data on each bank. Go to http://www2.fdic.gov/idasp/main.asp and enter the name of your financial institution and dig away. Much of it will seem unintelligible, but check key indicators, such as net income (a bank’s profit or loss), loan charge-offs (losses on loans the bank has written off as uncollectible) and something called “nonaccrual loans” — the amount of loans at least 90 days late but not yet charged off.

Bankrate.com provides “Safe and Sound” ratings on individual banks, thrifts and credit unions at http://www.bankrate.com/brm_c/safesound/ss_home.asp.

The AJC also regularly publishes a list of Georgia banks that have a high “Texas ratio,” a figure that attempts to gauge a bank’s risk by comparing the size of its problem loans to the amount of capital and reserves it has set aside to cover potential loan losses. The most recent list can be found at http://www.ajc.com/business/content/printedition/2009/02/15/failratio0215.html.