Finally, I have internet access again!  Just in time for this sweet story.

“Regulators and investors are bracing for a small number of banks to fail over the next 12 to 18 months. Analysts predict that 50 to 150 banks might stumble. In the first quarter this year, the F.D.I.C. listed 90 banks as troubled, which is far lower than the levels during the savings and loan crisis of the 1980s.” – NYT: Confidence Ebbs in Bank Sector and Stocks Fall

A few banks have already failed.  The most notable is IndyMac, which has caused some serious issues in California.

“Tempers flared at an IndyMac Bank branch in Encino Tuesday as customers squared off over who should be allowed into the bank first.”

“At least three police squad cars arrived at the branch on Ventura Boulevard to restore order before the bank opened its doors at 8:00am. Police urged customers to remain calm or face arrest as they tried to pull their money on the second day of the failed institution’s federal takeover.”  -  KTLA News:  Tempers Flare at IndyMac Branch, Police Called

 

Economy

What does this mean for the economy?  It does not necessarily mean the economy is getting worse.  Bank failures do not happen overnight.  This is something that has been building for quite a while.  In fact, bank failures are trailing indicators, not leading indicators of economic problems.  This means a lot of bad stuff has already happened.

The good news is the failures indicate we are at least past the beginning of the economic downturn.  The bad news is it is really hard to tell how many financial institutions will fail.  However, many of the large financial institutions report earnings (losses) this week, which might give an indication of how bad this can get. 

Your Own Accounts

If you have less than $100,000* in an FDIC insured institution you will not lose it.  The FDIC has never failed to meet their obligations.  However, sometimes it takes a week or two for the FDIC to take over the failed bank.  Thus, if you need your money quickly, you may want to make sure your bank hasn’t hit the headlines with negative news.  If your bank has a significant negative event associated with it, consider moving some or all of your money to two or more institutions.   Spread out your risk.

If you have more than $100,000* in an FDIC insured institution you need to move enough money out of the bank to ensure you only have $100,000 in the bank.  The money you take out needs to be spread among enough financial institutions to ensure you don’t have over $100,000 in any institution.

*This includes all of your accounts at that financial institution.