Forget Stress Tests: Consider Local Banking

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Wed, Apr 29 - 1:36 pm EDT | 5 years ago by
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800px-bankofamericaporterranchA lot is being said about the impending release of bank stress test results. However, for most of us these stress tests are basically useless. The average consumer really doesn’t care a whole lot about whether or not 19 of the biggest banks have big enough capital cushions. Mainly because those 19 banks are most likely the institutions that the government would save anyway if they looked ready to fold. Wall Street investors care about capital cushions, but it’s really not the information you need to make every day personal finance decisions with regard to your bank (or credit union) — and whether your money is safe.

So far, rumors are that six of the 19 banks (remember that there are more than 8,500 banks in the U.S.) need more capitalization. Since Citi and Bank of America are appealing stress test results to the Federal Reserve, it is assumed that they represent two of those six. While it would be awesome if Citi went down and somehow in the process my student loan debt were wiped out, that’s not likely to happen. Instead of relying on bank stress tests, think local and consider these factors when assessing your banking:

  1. Is your bank lending to ordinary folks with reasonably good credit?
  2. Is your bank increasing fees at a rapid (and large) rate?
  3. Is the credit department cutting lines of credit and slashing credit limits?

Chances are, these indications will be more likely to help you determine how safe your money is. If your bank is still lending, it is probably in reasonably good health. And, in fact, many local banks and credit unions are still issuing loans to people with reasonably good credit. Noticeably large increases in fees, however, could be a sign that your bank is looking to raise capital for protection. Cutting credit is a sign that the bank is trying to cut risk — and that the bank may be at risk itself.

If you are curious about your local financial institution, you can go to and take advantage of the useful Safe & Sound feature. Just type in the name of your bank or credit union and check the rating. It’s far more helpful than relying on government stress tests.

Remember, too, that you can protect yourself if you have more than $250,000 that is insured by the FDIC through the end of the year: Just move your money around so that no account sports more than $250,000. It’s a problem I can only wish I had.

Do you think your money is safe at your local bank or credit union?

image source: Coolceasar via Wikipedia

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  • ObliviousInvestor

    “While it would be awesome if Citi went down and somehow in the process my student loan debt were wiped out”

    lol. Right there with you on that one.

  • Mary Jo

    I’ve banked with Bank of America for almost 20 years now, but am worried that I should be thinking about changing.

    I only have basic accounts there (no investment accounts), and am not out looking for credit. Fortunately my only debt is a fixed rate mortgage, with about 10 years left. I’m thinking about retirement being around the corner, though, and wonder if I’m being naive about all this not affecting me.

    How would Citi of BA going under affect people like me?

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  • elevate your fico

    With FDIC coverage at $250,000, there is not a whole lot to worry about in terms of losing your money; however, if you have money at a bank that is taken into receivership by Uncle Sam, don’t think you would get a check in the mail in a week. It may take weeks, if not months to recover your money.

  • Ryan @ SpendOnLife

    Many of the local and regional banks here in Texas are doing quite well in this economy as they didn’t participate in sub prime mortgages to begin with.

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  • sicheres onlinebanking

    I think i like to bank as usual, but it’s better to know all.

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  • Miranda Marquit

    Same here. It’s all about going with a local institution that didn’t get into all that “creative” stuff. Many local banks and credit unions are in a much better place because they’ve been following tried and true “boring” banking for years.