Bank Troubles: What About Your Money?

July 16, 2008 — -- A privately prepared list of 10 endangered banks obtained by ABC News has left some investors and patrons across the country confused and concerned about the safety of their money.

The list uses a relatively simple ratio, comparing each bank's bad loans to its capital to determine whether the banks are in danger of failing.

Banks in Colorado, Maryland, Georgia and California top privately prepared lists of troubled banks that are circulating on Wall Street and in Washington, but the Federal Deposit Insurance Corporation has kept secret its official list of 90 troubled banks, according to a report by ABC News' Brian Ross.

While some believe such lists are ominous predictors for the financial future of many institutions, other experts, such as "Good Morning America" financial contributor Mellody Hobson, believe the list has caused bank patrons unnecessary anxiety.

"The fact that analysts have lists of at-risk banks, or that the FDIC has a watch list of 90 banks doesn't mean that you have to worry," Hobson said.

According to Hobson, this is just part of the natural financial cycle. She noted that in 1994 there were more than 500 banks considered "in danger."

Jeff Fielder, president of Research Associates of America, is only slightly more concerned.

"Nobody is saying that all these banks are going to fail," Fielder said. "These are troubled banks that need more capital in order to be able to operate on a safe level."

Even if some of the banks do fail, as many bank officials expect, Hobson said it would not seriously affect most customers.

"The No. 1 fact is that in 75 years, no depositor in an FDIC insured bank has ever lost a penny of insured deposits," she said, referring to personal accounts up to $100,000. "There is nothing to worry about if your money is insured. The system has worked for 75 years."

Rather, Hobson sees the fact that the FDIC has compiled its own secret list of 90 banks that the organization is concerned about proves that it is on top of the situation.

Hobson also called into question not only the accuracy of the list but the possibly suspicious motivations behind those who circulated them.

"These lists being out there does cause me grave concern," she said. "Some of these lists may be put out by Wall Street sources who may be interested in negative reports that will be of benefit to short sellers -- people who are betting that the stocks of the banks that are publicly traded will fall."

Ed Yingling, president of the American Bankers Association, adamantly agreed.

"These are incredibly simplistic and misleading ratios," he said. "Frankly, we do think it's irresponsible to circulate these things with names on them as though they really mean something."

According to Fielder, however, the list is accurate enough to be shared with the public.

"This is information everyone should have, not just Wall Street, not just people who want to buy and sell stock," he said.

Whether the list should be seen as an accurate warning to customers and investors or a dubious overreaction remains to be seen. Clues may be forthcoming, however, as several banks issue reports later this week.