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VERIBANC BLOGS Next blog: Bring Back Glass-Steagall Why Should I Care If My Bank Fails?If my bank or credit union fails I have up to $250,000 of protection, right? Yes. However, for people or businesses with CDs or Lines of Credit, insurance protection does not cover: 1. terms, 2. conditions, or 3. agreements that were previously established. When a bank fails and another bank buys it, all of the prior CD terms or lines of credit covenants have to be renegotiated and re-underwritten. If you have planned on a certain level of income from your CD portfolio and your institution fails you most certainly will see a reduced interest rate from the acquiring institution. If no institution will buy the failed institution’s CD portfolio then the FDIC will write you a check and now you have to find one or more institutions to invest in - most likely at a lower rate. If you had previously established a line of credit, meaning you went through an underwriting process, and your institution fails then you are at the mercy of two events: 1. If another institution acquires your line of credit they will make you go through their underwriting process. This usually translates into a line of credit with a lower line and more restrictive covenants. This could be especially hard if you were planning on a certain line to be available for your college or remodeling budget or if you own a business that depends on its current line of credit. 2. If no bank or credit union buys the assets of the failed institution then you have to find a new institution and start the process all over again – and usually you will be under certain time constraints. Fortunately, VERIBANC can help mitigate the sudden unexpected event of your bank failing. Our rating system provides ample warning, often six months or more, should your bank start experiencing problems. Our Short Form report provides not only our rating but the high level financial data that stands behind the rating – in Plain English. This report is a very economical tool that not only helps you monitor your bank but provides an early warning should your bank develop problems. |
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