How to Tell If Your Bank or Credit Union Is in Trouble
Don't wait until your bank or credit union is in the headlines before you pull your money out. In all cases of major bank failures in recent years, deposits have been purchased quickly by other solvent banks. Federal Deposit Insurance Corp. (FDIC) funds have not been needed to pay back deposit holders after a bank failed. The annoyance of a bank failure comes in having access to your funds disrupted and dealing with a new bank after the switch occurs. Monitor the FDIC's quarterly call report on your bank or credit union to determine its financial stability.
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Instructions
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Go to the FDIC's call report website (see Resources), and look up your bank or credit union. These call reports are written and updated by the Federal Financial Institutions Examination Council (FFIEC). The reports are updated every quarter and cover the bank's exposure to risk, its loan-to-deposit ratio and the dollar value of all outstanding loans that are delinquent by 30 days or more in payments.
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Review the bank's risk-based capital ratio. This number exposes what percentage of the bank's outstanding loans can be considered high-risk. If the number for your bank is above 5%, it's a sign that its solvency may be in question if those loans stop performing.
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Look at the bank's loan-to-deposit ratio. If the ratio is low, it means the bank has a very large number of outstanding loans relative to the deposits on hand. This means that for every percentage point below 100%, the bank has more liabilities than assets. If the bank has a loan-to-deposit ratio of under 90%, it's a sign that either the bank has recently completed a short-term expansion in loans relative to deposits or it may be facing financial trouble.
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Evaluate the bank's portfolio of delinquent loans. This is displayed as a plain dollar amount on the FDIC call report and should be compared with the total dollar amount of the loans the bank has outstanding. To get the percentage of delinquent loans relative to healthy loans, divide the amount of nonperforming loans by the dollar amount of the total loans outstanding. If this number is 15% or larger, it's a negative sign regarding the bank's financial health.
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Look at the rates paid by the bank for certificates of deposit and savings accounts. If the bank pays very high yields, it could be a sign that it's trying to rapidly build up its level of deposits to cover weakness in its loan portfolio. This is not necessarily proof of weakness, however, as a bank may decide to pay higher rates if it's preparing for a period of high growth.
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