Guest Columns


Want a safe place for your money? Try the institution you can bank on

Powerful photojournalism or a dramatic headline can influence our perceptions in ways that don’t exactly mirror reality.

The reality is that the commercial banking industry is strong, solid and vibrant. It has the tools, oversight and experience to weather the economic turbulence.

As Federal Deposit Insurance Corp. Chairman Sheila Bair put it, “Insured deposits are absolutely safe … the banking system as a whole is absolutely safe.”

In this time of financial uncertainty, a factual explanation of the status of banks should assure depositors that their funds are safe in any FDIC-insured bank. Depositors have the benefit of multiple layers of protection.

“Real” banks are the safe haven to which people move funds during uncertain times. Don’t confuse real banks, which are insured by the FDIC, with other financial institutions that might have “bank” in their names. Those might include investment companies, mortgage companies or other entities that often are called banks erroneously. Because of consumers’ flight to safety, deposits in Colorado banks increased by 8 percent last year and by 33 percent over the last three years.

FDIC protection isn’t the only factor that makes banks safe. Nationally, banks have $1.36 trillion in capital, which increased significantly in 2008 despite the troubled economy. There is another $129 billion in reserves for future loan losses. According to the FDIC, 8,385 banks in the U.S. are well capitalized (accounting for 99.6 percent of all banking assets); 91 banks (.03 percent of assets) are adequately capitalized, and only 18 banks (.01 percent of assets) in the U.S. are categorized as undercapitalized.

As of March 31, Colorado-based banks have a strong $5.3 billion in capital (more than 10 percent of their assets), which is up 35 percent in the last three years. Loan-loss reserves have remained steady at a solid 1.2 percent of assets over the last several years. Noncurrent loans (90 days past due) are a modest 1.46 percent of total loans.

Admittedly, loan charge-offs are up slightly. They are, however, still low and have been affected very little by the subprime crisis. While banks account for 58 percent of residential mortgage lending, their customers constitute only 18 percent of foreclosures in Colorado. That’s because bankers try to make sure borrowers can repay their loan. Other lenders aren’t so cautious.

In addition to the inherent stability of banks, government examination and regulation provide another layer of protection. THE FDIC-insured banks must meet high standards of financial strength and stability, and the FDIC regularly scrutinizes their operations to ensure the safeguards are met. Recently, Richard Fulkerson, the state banking commissioner, who regulates state-chartered banks said, “The overall Colorado banking industry remains strongly capitalized and well positioned to handle any economic downturns.”

Troubled banks are the rare exception, not the rule. Currently only 90 banks out of 8,494 banks nationwide are considered troubled. On average, since 1982 only 13 percent of “troubled” banks actually failed.

Troubled banks are usually sold to stronger banks, or, in rare cases, the FDIC takes over and pays off depositors.

The FDIC protects depositors dollar for dollar including principle and interest up to the insurance limit. Depositors are paid by the FDIC within a few days. Since the FDIC was created in 1933, no depositor has ever lost a penny of insured deposits. The FDIC insurance that protects depositors is paid for fully by banks; no tax money is used. Five banks nationwide failed in 2008, three in 2007, none in 2006 or 2005, five in 2004, and three in 2003.

That’s compared to 1,617 banks that failed in the 1980s and early 1990s. That was a difficult era for banks, but the industry made necessary adjustments and continues today to provide the public with a safe place for their money. The FDIC has $52 billion in reserves, and another $5 billion will be added this year alone by banks.

Depositors are insured up to $100,000 per depositor per insured bank. Certain retirement funds such as IRAs are insured up to $250,000. Depending on how deposit accounts are titled in different ownership categories, the basic $100,000 protection can be increased to larger amounts. Certain trust accounts are separately insured up to an additional $100,000 if certain conditions are met. Additional details are available at (see deposit category), and at 1-877-ASK-FDIC (or 1-800-925-4618 for hearing impaired).

Although banks currently have issues they need to address, no other industry has the financial strength to help resolve current crises. Banks were the ones that purchased Bear Stearns and Countrywide in order to prevent their collapse.

In an era when people are concerned more about the return of their money than return on their money, we’re glad to report that banks provide both the safety of the deposited funds and the earnings on them.

Your money is safe at your bank.

Don Childears is president and CEO of the Colorado Bankers Association.