Monday, October 13, 2008

Can you Bank on It?

Last month we pulled our down payment out of a savings account at national bank (where we had banked online for the last 8 or so years) and put it into a regional institution. Call me paranoid, but I like the idea of having a branch office in times of turmoil.

Wondering how others feel about this national vs. regional issue when it comes to banking. Do you have a local/regional bank or credit union to recommend? Or do you feel big national banks like BofA are the way to go, since they are likely "too big to fail"? Or do you chase the best returns, wherever they may be?

I've never been one to shop banks.....I tend to be a creature of habit and convenience.

I understand the FDICs need to keep people from pulling their money out of troubled institutions, however it would be nice, to have some understandable and objective ratings as to an institution's liabilities and exposure. I used Bankrate's safe and sound ratings to check but they seemed kinda generic.

In particular, with the local/regional institutions, I worry about their commercial real estate exposure. It can't be a pretty picture. All I see around EDH is empty commercial space, with even more being built!

13 comments:

Patient Renter said...

do you feel big national banks like BofA are the way to go, since they are likely "too big to fail"

Yep, that's pretty much what I feel, though I despise all banks, even the big one that I bank with.

For savings funds, the big banks tend to have lousy rates, so I usually go with smaller entities... of course nowadays, you could just put your money in a Federally "insured" money market fund and get a much higher rate.

RV6Flyer said...

Why do you despise ALL banks?

alba said...

Is there anything not being "guaranteed" anymore? Pretty soon, Paulson will be backing margins on individual broker accounts, then at Thunder Valley Casino.

Patient Renter said...

Banks profit from interest earned on money created out of thin air, something that no normal citizen has the authority to do, yet we're all stuck with the effects of the resulting inflation. What's not to despise about that?

RV6Flyer said...

"Banks profit from interest earned on money created out of thin air, something that no normal citizen has the authority to do, yet we're all stuck with the effects of the resulting inflation. What's not to despise about that?"

Tell me more about this money created out of thin air. Are you referencing funds drawn from the discount window?

Take a look at a de novo bank and explain to me how it started and got funded with money out of thin air.
Take a look at Wells Fargo, tell me where it is getting these funds from thin air.
When a community bank needs cash to fund loans, they put on a CD special to attract cash. They may also do a participation loan, sell stock, or borrow funds from a larger bank. Most don't do repo's or use fed funds.

Patient Renter said...

Tell me more about this money created out of thin air.

It's just Fractional Reserve Lending. You deposit 100 dollars at your bank, and the bank lends out $1,000 from that (for example), effectively creating $900 additional dollars out of thin air, which they can collect interest on. The authority to create money out of nothing is granted only to chartered banks, which is granted to them via the Federal Reserve, which was granted to them via Congress. You or I can't do it. It's kind of like a legalized racket.

The video Money as Debt is a nice little primer to fractional reserve lending.

Vanda said...

I bank with my work place credit union, and I trust them far more than big banks.

I would not Bank with BofA under any circumstance again. I've had very unpleasant experience with them. Also they are known for unsavory business practices. About a year ago there was an article in BusinessWeek about BofA habitually raising credit card interest rates of borrowers of perfect standing. They figured that they will lose some customers, but will still come out on top with those who stay.

RV6Flyer said...

"It's just Fractional Reserve Lending. You deposit 100 dollars at your bank, and the bank lends out $1,000 from that (for example), effectively creating $900 additional dollars out of thin air"

PR, go back and read up a little more. There is no mythical $900 created out of thin air. You deposit (loaned) the bank $100, they loan out $80 and keep $20 on reserve. And, yes, you and I can do this. Bank of Sacramento does not have a printing press in the back room.

Patient Renter said...
This comment has been removed by the author.
Patient Renter said...

PR, go back and read up a little more

Obviously you haven't read up or we wouldn't be having this discussion.

I don't know what else to tell you. Money is created out of nothing - that's just how our monetary system works.

Google fractional reserve banking, and as you said, read up. ( My google'ing found a nice article by Murray Rothbard. He uses a similar example to mine above: http://www.lewrockwell.com/rothbard/frb.html )

RV6Flyer said...

The base amount of currency floating around the world does not change in fractional reserve banking. M0 (those dollars in your pocket) can only change by the actual printing of money.

Patient Renter said...

The base amount of currency floating around the world does not change in fractional reserve banking. M0 can only change by the actual printing of money.

And this counters my explanation of FRB how?

FRB has little to do with coins and paper (M0). Money doesn't need to be printed to expand, it's created electronically.

G Spot1 said...

Whatever you do, keep it within FDIC limits.

I think the concern I would have about regional banks is that they could be toppled by one or two catastrophically bad loans. Commercial real estate is the problem here right now. The bank safety ratings are better than nothing but my concern would be that unless they are checking out things behind the balance sheet - such as, has that nice new shiny strip mall attracted an anchor tenant - then things can go bad quickly. As they say, if you can't pay back a $10,000 loan, it's your problem. If yYou can't pay back a $10m loan, it's the banks problem. Indeed, a key reason for FDIC insurance is because it is so difficult for consumers to determine which banks are in good health and which are failing (until, of course, rumors get out and the bank run begins).

That said, there are plenty of sound regional banks and there are many reasons to choose one over a national bank.