How do you find a safe bank? Is there such a thing as a safe bank? These questions are on many people's minds these days. Banks always loan more money than they have in their coffers, but the safest banks know how to lend wisely so that they will not end up under water if there is a run on the bank. How do you choose the safest bank in a time like this? Any bank you consider must display the following characteristics:
High Ratings On Bank Stress Tests
Independent agencies and government agencies alike are conducting "stress tests" to evaluate the strength of banks during the economic crisis that began in 2008. The safest banks will pass the stress tests with flying colors.
FDIC Insurance
FDIC insurance guarantees that you will be able to collect a pre-determined amount of your money even if the insured bank goes under. If you have more than the insured amount of money in one bank, you'll want to transfer the excess to another FDIC-insured bank so all of your assets are insured. While it's possible that even the FDIC could run out, it isn't likely. The FDIC has increased the amount of money for which accounts are insured to $250,000 to try to encourage people to keep their money in bank accounts.
Quality Assets
A safe bank has a higher number of quality assets and a lower percentage of toxic assets, which are loans that are under water. The change to the mark-to-market rules is going to make it tougher for people outside the banking industry to determine how toxic a bank's assets actually are, something that worries investors. Stay abreast of business and financial news when both the government and investors in the know discuss the actual quality of assets.
Liquidity
Liquidity saves a lending institution in the case of a run on the bank. If a bank can't access enough money to stave off panic and down times, a bank is at risk of going under. Banks with good liquidity are more likely to make it through the downturns.
Profit
Look for a bank that still turns a profit, even with the bad economic times. If you see a bank posting profits and paying back TARP money, which the US government recently invested in the banks, you know you're looking at a bank that's turning the corner.
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