Is Your Money Safe In The Bank?

Recent talk of stabilization of the economy and imminent recovery has served to divert public attention from the continuing banking crisis.The number of failed banks this year has already reached 81.Bloomberg reports that more than 150 publicly traded banks have toxic loans exceeding 5% of their loan portfolio,a level that can wipe out a bank's equity and push it into bankruptcy.This figure would definitely be much bigger if their portfolios were marked to market.These banks have combined deposits of $193 billion.The FDIC on its part is bankrupt.Its deposit insurance fund had $13 billion as on March 31st.The failures since then will cost it more than than this and it will have to draw on its credit line at Treasury,a polite way of saying that the taxpayer will have to foot the bill.

You need to remember the FDIC covers you only to the extent of $100,000 per person per bank.If you thoughtyou were safe if you had several accounts in different branches of the same bank you are wrong.This limit has not been raised since 1980.Increasing income levels and bank deposits have meant that today only about 62% of the depositors are insured,down from 82% in 1991.

To be fair the number of banks in trouble in the late 1980's and early 190's was almost 10% of the FDIC insured banks while the corresponding number this time is about 1%.But what troubles people is the lack of information they have about the financial health of banks.Almost all the banks have collapsed due to their exposure to residential housing and commercial real estate.Although the housing sector is showing signs of stabilization,this is only with regards to the number of units sold.Median prices as well as unit prices continue to fall and a new wave of foreclosures is expected to hit the market.Analysts estimate that almost 30% of all mortgages may be underwater by next year as unemployment continues to grow.

The impact this will have on the banking sector is obvious.Although it may be too early to stick your cash under your mattress,the list of banks in trouble is set to grow longer.