How to Tell if a Bank is Safe

JANESVILLE, Wis. -- Fridays have been busier this year at banks around the country, and not in a good way.

At a pace that's already eclipsed that of a year ago, federal officials have swooped in and shut down banks from coast to coast.

The Federal Deposit Insurance Corp. reported 140 bank closings in 2009, a dramatic increase over the 25 that were closed in 2008.

Through Nov. 5 of this year, the feds already had shuttered 143 banks.

Is yours next?

Financial experts suggest you check ratings of a bank or credit union through several free resources. The FDIC suggests two: BauerFinancial and

BauerFinancial has been analyzing and reporting on the financial condition of the nation's banking industry since 1983. has evolved since its founding in 1976 to become one of the Web's top gatherers of financial data.

Many banks and credit unions have run into a problem with bad loans. The Investigative Reporting Workshop of the American University School of Communication compares an institution's troubled assets -- loans more than 60 days past due and real estate acquired by foreclosure -- with its capital and loan loss reserves.

"Generally speaking, higher values in this ratio indicate that [an institution] is under more stress caused by loans that are not paying as scheduled," the school said in a footnote.

While some industry analysts expect failures to continue -- particularly among smaller institutions -- a troubled asset ratio doesn't necessarily predict it.

In some cases, the owners of banks are able to inject additional capital. In others, debtors bring their loans current. In addition, it's possible that a struggling institution can find a strong merger partner.

In fact, according to the FDIC, most troubled banks eventually recover.

If they don't, however, the FDIC insures multiple deposit accounts up to $250,000.

"It really doesn't matter if the bank fails," said Russ Kashian, an economics professor at UW-Whitewater. "For federally insured banks and credit unions, the FDIC has taken the onus off the depositor as long as their money doesn't exceed $250,000 in several different accounts."

J. Michael Collins, faculty director of the Center for Financial Security and a professor at UW-Madison, said that although more banks are failing, he's not certain consumers are paying any more attention.

"Often, regulators come in on a Friday, and they have a new institution quickly in place to take over," he said. "Consumers often don't even know it happened and continue to work with the same people.

"Consumers just need to pay attention that they don't let their balances creep over that FDIC limit."

A bank failure, however, does get the attention of shareholders who could see their investment wiped out.

"People shouldn't own stocks unless they understand what they're doing or have a reliable financial adviser," Kashian said. "Banking is an extremely complicated industry, and shareholders need to look beyond the balance sheet to see what's going on."

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