How Safe is Your Bank?

Sidebar article to "The Credit Crisis and Moral Hazards "

Fall 2008 issue -- Here are some things that you can do to protect yourself and, incidentally, your business:

• See if you can learn whether your brokers and banks are in financial trouble. A number of sites on the internet identify and discuss troubled banks.
• Stay on top of the news about your brokers and banks. If you learn that one is in serious financial trouble, reduce your exposure to that bank right away.
• Understand that banks and brokers have different kinds of insurance to cover your accounts. Ask each of them about how your accounts are insured. Get their written material on the topic, and don’t rely upon verbal assurances. Be sure that you do not exceed FDIC / SIPC / NCUA and other insurance limits for your accounts. Many brokers carry additional insurance; learn about yours.
• Also note that there may be different kinds of coverage for different kinds of accounts, e.g., custodial and trust accounts, IRAs, etc., and for different securities, money market funds, and cash.
• Spread your accounts among a few banks to disperse your risks, or look into Certificate of Deposit Account Registry Service (CDARS), which, in effect, can substantially expand FDIC insurance coverage beyond the individual account limit.
• If you need to make changes, do not hesitate to make them.

Congress will back up the FDIC, however paltry their reserves. So your neighbors will assure that you do not lose your cash if you are careful.

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