The federal takeover of IndyMac, a California-based mortgage lender that had $32 billion in assets, has led a lot of folks to wonder whether their own bank will be the next victim of the credit crunch.
That's not an unreasonable concern. The Federal Deposit Insurance Corp. has identified 90 institutions as "problem banks," which means they're at greater risk of failing. That number is up from 50 at the end of 2006. (The FDIC won't identify problem institutions because it doesn't want to trigger a run on those banks.)
But that doesn't mean you should withdraw your money and bury it in your backyard. If your bank goes under, you won't lose any money as long as your deposits are insured. In most cases, you'll have access to your money by the next business day.
In addition, the IndyMac failure offers some important lessons for savers who are concerned about the financial soundness of their bank. Among them:
•Not all your deposits may be insured. About 10,000 IndyMac customers hold about $1 billion in uninsured deposits, according to the FDIC. The FDIC said it will pay those customers an "advance dividend" equal to 50% of their uninsured deposits. Any additional payments won't be made until after the FDIC sells IndyMac's assets. And there's no guarantee that the customers will receive any money from the sale.
The FDIC insures up to $100,000 per depositor in individual accounts, or up to $200,000 in joint accounts in which each account holder has equal withdrawal rights. It also insures up to $250,000 for individual retirement accounts invested in insured deposits. The agency estimates that about 37% of all bank deposits are uninsured. Some of those accounts belong to businesses that keep more than $100,000 in the bank to pay bills. But other uninsured accounts may belong to individuals who have inadvertently exceeded the limits.
If, say, you have insured deposits at two banks that merge, your combined accounts might exceed the insurance limit for each institution. When two banks merge, the FDIC provides full coverage for the separate accounts for six months after the merger, or in the case of CDs, until maturity. After that, you'll need to shift some of your money to an unaffiliated bank to keep full coverage.
To calculate how much of your deposits are insured, go to fdic.gov and click on the Electronic Deposit Insurance Estimator under Consumer Resources. If you suspect that some of your IndyMac deposits are uninsured, call the FDIC at 866-806-5919. You might need to fill out some forms or schedule an appointment with the FDIC.
•If you buy certificates of deposit through a broker and your bank subsequently fails, you might not have immediate access to your money.
Brokered CDs often offer higher interest rates than do CDs sold directly through banks. As long as they don't exceed deposit limits, they're federally insured. But IndyMac customers who own these CDs won't be able to get their money until the FDIC reviews their brokers' records to determine how much of the money is insured, says John Bovenzi, chief executive of the reconstituted IndyMac Federal Bank.
Customers who are concerned about their money should contact their brokers and urge them to file the paperwork with the FDIC as soon as possible, says FDIC spokesman Andrew Gray.
Frozen equity lines
Here's a look at other ways that the FDIC takeover will affect IndyMac borrowers and savers:
•Certificates of deposit. The FDIC will honor interest rates on traditional CDs until maturity, Bovenzi says. As recently as last week, IndyMac was offering an attractive yield — up to 4.3% on one-year CDs.
But the FDIC stopped paying interest on brokered CDs as of Friday, Bovenzi says. Those CDs paid even higher rates, he says. Continuing to pay those rates, Bovenzi says, would reduce the value of the bank, making it less attractive to potential buyers. "And it's the value of the bank that will get some money back for uninsured depositors."
•Home-equity lines of credit. IndyMac customers' home-equity lines will be frozen until the FDIC has time to review each account, says FDIC spokesman David Barr.
•Loans. IndyMac borrowers should continue to make payments on loans through the bank. Though IndyMac's online service was disabled over the weekend, it's now operating normally, Barr says. Customers who make electronic payments can continue to use that payment system, he says.