An article posted in the money section of MSN.com titled, “Could Your Bank be the Next to Fail?” caught my eye this week. The article summarized the recent seizure of IndyMac Bank by the FDIC and offered ways to protect yourself.

The author also noted it was difficult for the average consumer to do research on which banks may be in trouble. That is certainly true, but only because most consumers don’t know where to look.

The FDIC’s website is one of the best resources for this research. It’s surprisingly easy to navigate, and offers explanations of most of the terms and data shown.

One of the best data points to examine is the “Tier One Capital ratio.” Tier One Capital is the ratio used by regulators as an overall indicator of the financial well-being and stability of a bank. The higher the Tier One Ratio, the more likely a bank will be able to handle a greater-than-average withdrawal of deposits and/or problems with assets such as real estate loans.

In contrast, a lower Tier One Ratio is a strong indicator of trouble; in which case, the FDIC steps in. The regulators start to pay attention when banks Tier One Ratio slips below 6%.

Speaking of the FDIC stepping in…To many consumers, this seems to be a sign of complete disaster. Fortunately, thanks to the FDIC insurance, it’s not. However, one of the ways you can protect yourself against loss is to have a better understanding of how FDIC deposit insurance works before you open accounts.

The FDIC insures deposits of up to $100,000.00. Until recently, anyone wanting to deposit more than $100,000.00 and have it completely insured had to open individual accounts with several different banking institutions and/or utilize different account ownership types to achieve greater levels of insurance coverage.

While this is the safe approach, it is time consuming and can be tedious to have multiple banking relationships. At the present, banks like Bay Commercial Bank in Walnut Creek, California are a member of CDARS®, Certificate of Deposit Account Registry Service. Using the CDARS® service, you can access up to $30 million in FDIC protection on your CD investments. “One bank, one rate and one statement”. A single statement is sent out detailing all of the CD investments. As with most certificates of deposit, CDARS® offers various maturity options to choose from.

CDARS® is not right for everyone and not all banks offer the service. However, between FDIC deposit insurance and the newer CDARS®, most consumers can put aside concerns about losing funds on deposit in banks.

In closing, let’s go back to the excellent resources offered on the FDIC’s website. If you want to know how your bank is doing, if you want to know the earnings history, the capital base, information regarding the level of past due loans, the number of employees or other interesting characteristics, this site is for you. As lenders, we often say “know your borrower”; as clients, you may want to say ‘know your bank”. If after all your research efforts are exhausted and you still have questions, give the CEO of your bank a call (what a novel concept).

By: George Guarini, CEO Bay Commercial Bank (925) 476-1800