Your Money Minute with Dennis Staaland

Banking System

  We've been talking about what's coming in 2010.  We covered GDP, or the strength of the economy.  Then we looked at interest rates.  This week we are going to look at the ever increasing problem in our banking system.  As of today, we have had over 100 bank failures nationwide this year. 

A bank failure essentially occurs when bank's troubled assets exceed their capital.  Troubled assets are generally defined as:

• 1. Loans at least 90 days past due
• 2. Loans where the bank is not accruing interest, and
• 3. Loans that have already been foreclosed on.

As you can see, none of these are good.  If you add all these areas together and they are more than the bank's capital, you have a formula for failure.  What caused these problems?

Essentially, they have been the result of three main areas:

• 1. A severe decline in real estate values
• 2. Over zealous lending on the part of the banks, and
• 3. The results of this terrible recession that we have just broken through.

When you combine these factors, we see the results of a perfect storm that is causing a strain on the banking system.  Should you worry?  NO!  The FDIC insures your deposits up to $250,000.00 and usually when a bank does fail, the FDIC finds a buyer that takes over operations of the bank.  Bank failures could exceed 200 for the 2010, so get ready.