Wednesday, July 16, 2008
Mac attack: How to evaluate the safety of your bank
|The photos of people waiting in long lines outside IndyMac’s branches to withdraw their money are all to reminiscent of the 1929 Wall Street Crash that jolted the country, causing folks to congregate outside every bank to empty their accounts.
The FDIC seizure of IndyMac Bank, which is Pasadena-based and has 33 branches throughout California, was felt all the way to Wall Street. The good news … we will not be reliving the Great Depression. However, it was a wake up call and now is the time to consider the safety and soundness of the bank that we trust with our money.
After a long run of prosperity, the U.S. banking industry has lost its momentum. IndyMac, one of the nation’s largest home lenders is the latest casualty of the mortgage meltdown and, now, we are watching Freddie Mac and Fannie Mae struggling to manage the mortgage foreclosures.
Freddie Mac and Fannie Mae will recover with the Fed’s help and with a rebound in the housing market. Analysts are making all types of projections about when the real estate market is going to look up. Even signs that the worst is over could boost confidence significantly.
As we walk this troubled road, it is important for us to take each step with our eyes wide open. Just a few months ago, you may have thought little about the bank that you entrusted your money to because it seemed that we were seeing the light at the end of the recovery tunnel. But suddenly, the tunnel became longer it is important to check the financial stability of your chosen financial institution.
It’s important to evaluate the financial history of the bank you are with, looking at their types of assets and their performance. Did your bank make or put subprime loans in their investment portfolio? Did your bank make a profit or loss last year or last quarter? Don’t rely on the bank’s stock price to tell you its strength. Although I have learned that in life there are few things we can really count on. A lesson learned is … I know it is not fearing your bank, but knowing your bank that is important. Remember, knowledge is power and that evaluating the strength of your bank is the key to riding out this financial storm without getting wet.