The recent IndyMac bank collapse in California caused shock waves throughout the nation, affecting even Alabama bank customers, who now wonder if their deposits are secure, and how they can find out.All U.S. banks, with the exception of credit unions, are insured by the Federal Deposit Insurance Corporation, according to First National Bank of Talladega Vice President Chad Jones. The FDIC fully insures member banks for up to $100,000 per depositor, or up to $250,000 for certain independent retirement accounts. FDIC insurance covers deposit types like checking and savings accounts, as well as certificates of deposit. However, if a customer’s total deposits at one member bank exceed $100,000, the FDIC does not promise to cover the amount above the limit.
The FDIC also does not cover what it calls “non-deposit investments and insurance products,” such as stocks, mutual funds, life insurance policies and annuities. These investments “are not FDIC-insured, are not guaranteed by the bank, and may lose value,” an FDIC informational pamphlet explains.
But few, if any, put their money in a bank they anticipate will collapse — including IndyMac customers — and bank customers want to know now how their financial institutions are doing, before a potential collapse.
But turning directly to the FDIC’s Web site can easily overwhelm users because of the sheer volume of information, much of it technical.
One resource customers can use to determine their bank’s soundness, Jones said, is bankrate.com, which has what it calls “Safe & Sound” ratings. The Web site uses two ratings: the bankrate.com Star Rating and the Safe & Sound CAEL Rating, which is an internal rating used for management purposes. The two ratings have an inverse relationship; while a 5-star rating is the highest rating a bank can receive on the star system, a CAEL rating of 1 indicates the bank is performing well above average.
Although the two ratings are related, customers should concern themselves primarily with the star rating system, Jones said.
First National Bank receives four stars from bankrate.com. “A four-star rating says, ‘This is a very good bank,’” Jones said.
Customers can look up their banks by a number of search criteria, including selecting the first two digits of their ZIP code.
Bankrate.com also provides memorandums with each bank it rates, explaining its reason for giving the rating it does. The memorandum tells a customer everything about the bank, Jones said.
The Web site’s ratings are most accurate for local institutions though, Jones said, because the bankrate.com rating for a large institution like Regions Bank is based on the entire corporation, not just what is local to the customer.
In addition to making it easier to assess their financial soundness, local banks also provide the added benefit of channeling most of their loans to the local communities where their customers live and work.
For that reason, among others, the Community Bankers Association of Alabama released a letter to the press on Tuesday reminding banking customers of the need to make sound decisions during this economically challenging time and urged them to consider local banking.
“Community banks are sound, well-capitalized and open for business all across Alabama, despite negative headlines about Wall Street megabanks,” wrote Scott Latham, president and CEO of CBAA. “Alabama community banks, and the bankers you know and trust, remain the best option around.”
But although the Royal Bank of Canada may not be a local bank, RBC president in Talladega William Clark said it is in a strong financial position because of its approach, which he described as “disciplined, focused and relationship-centered.”
He attributes the relative financial stability of banks in Alabama to comparatively conservative banking practices.
“In general, most banks in Alabama are strong, have been conservative for years, and we don’t do a lot of things that some have done on Wall Street,” Clark said. “We have less tendency to take the long risk that a lot of other folks have taken.”
To check your bank’s ratings, visit bankrate.com.
To calculate your deposit insurance coverage, visit fdic.gov/edie/.
For more information, visit the FDIC Web site at fdic.gov and the CBAA Web site at mycbaa.com.
First National Bank is compiling a list of resources on its Web site at fnbtalladega.com.
