Georgia’s banks made the front page of the Wall Street Journal yesterday (6/10/09). The article notes that Georgia is home to 4% of the banks in the United States, but is responsible for 20% of the US bank failures since August. This year alone, six banks in Georgia have been seized by the Feds. The article goes on to say that there are thirty more banks in Georgia that are at risk of failing.
After reading this article, I did a search for the FDIC’s failed bank list to see which GA banks were on the brink of failure. I quickly became aware that the FDIC does not publish its failure watch list. This makes some sense as this could cause a “run on the bank” that would cause the institution in question to surely collapse. They do publish the banks that have been taken over by the government.
This list for GA is quite lengthy, but after going through the list I could not help but notice one glaring similarity, but first, let me explain how I came to this discovery.
At Wiser Wealth, we manage CDs for many of our more senior clients. For a small fee, we can access CDs across the country and place them all in one brokerage account. This keeps our clients from driving across town and by using various banks, we can keep the entire account FDIC insured. Inevitably, a client would call me up and say that he was driving and saw a sign that said “Bob’s Bank” had a 5%, 1 year CD. I would explain that we could not do business with just any bank but only those that established a relationship with TD Ameritrade, our custodian. I also saw the CD advertisements in our local Marietta Daily Journal.
And so, as I looked over the failed bank list, I saw Alpha Bank, Integrity Bank and American Southern Bank. I realized that these banks were just a few I remembered offering these very generous 5% CDs.
A bank is on the FDIC watch list for several reasons, but one is certainly not having the funds to keep operations running. If a bank needs to raise deposits, CDs are one way to do this. And certainly if the funds are needed quickly, a 5% CD in this environment is certainly going to get the attention of the conservative investing public. I am not saying that every bank that offers a exceptionally high CD rate is on the brink of extention, but it should be noted that this pattern at least applies to our failed banks in Georgia.
Currently the FDIC insurance limit per person is $250,000 (until 2014). One should never exceed this at a bank, especially in this environment. A brokerage account filled with various bank CDs is much more secure than all your savings at one bank, no matter what the institution size.
Certainly these banks did not get on the failed list because of 5% CDs. In Georgia, most of these banks failed because of unpaid loans from real estate. Regardless, the old saying that “there is no free lunch” applies here!
Casey T Smith – Wiser Wealth Management, Inc