Wall Street professionals aren't the only ones wringing their hands these days. The recent bankruptcy of Lehman Bros., coupled with mergers and takeovers involving banks has a lot of consumers concerned about the safety of their bank accounts, mortgages and retirement funds.
In response, the American Bankers Association has compiled the following Q&A; series:
Q. Where is the safest place for my money right now?
A. The safest place for your money is in the bank. It's earning
interest, it's FDIC-insured and it's accessible.
Q. How will the recent failure of Lehman Bros. affect me?
A. Unless you invested money with Lehman, you will not be affected.
And if you did, Barclays Capital has announced that it plans to
acquire the U.S. brokerage arm of Lehman, so all customers should be
protected.
Q. What's the difference between an investment bank like Lehman and my bank?
A. Investment banks operate differently from commercial banks and
thrift institutions. Their primary purpose is to facilitate the sale
of stocks and bonds. These Wall Street firms operate as advisers and
agents for companies that want to raise capital, often by issuing more
stock or other securities. Commercial banks and thrift institutions
take deposits for checking and savings accounts from consumers and
businesses. These deposits are insured by the FDIC for up to $100,000
per depositor per insured bank and up to $250,000 for retirement
accounts. These banks lend this money to consumers and companies for
autos, homes, business equipment, etc.
Q. Should I be worried about the health of my bank?
A. With 98 percent of nation's 8,500 banks considered "well
capitalized" -- the highest designation possible -- the possibility of
your bank being taken over by the FDIC is extremely remote. And if it
did happen, you would continue to have uninterrupted access to your
FDIC-insured deposits.
Q. How do I know I won't lose money?
A. Customers' bank deposits are protected. Not one penny of insured
savings has ever been lost by a customer of a federally insured bank.
Deposits are insured by the FDIC for up to $100,000 per depositor per
insured bank and up to $250,000 for retirement accounts. If you need
more coverage, your banker can explain your coverage limits and give
you options to ensure that all of your deposits are insured.
Q. What about lists that predict the next bank failures?
A. The only list that matters is the one from the FDIC, which has a
more thorough and complete picture of a bank's safety and soundness.
It's important that this list be kept confidential, because, on
average, the vast majority (87 percent) of banks on this list come
back to healthy status.
Q. Will I still be able to get a mortgage, credit card or other loan?
A. People with a good credit history will continue to have access to
mortgage, credit card and other types of loans. Appropriately, most
banks are taking steps to limit risk in the current economic
environment, so they have tightened lending standards. That's why it's
more important than ever to monitor your credit report and keep your
credit score in the "good" to "excellent" range.
Q. How does the recent takeover of Fannie and Freddie affect bank customers?
A: If you already have a mortgage, nothing will change. If you are
thinking of buying a home or refinancing a mortgage, the government
takeover will help stabilize rates. With explicit government backing,
Fannie and Freddie can continue to buy mortgages, hold them in
portfolio or sell them into a functioning mortgage market. Mortgage
rates nationally have already come down, making it easier for
homebuyers to qualify and for homeowners to refinance high-priced
loans.
