Banker responds to concern

To the editor,

We have received numerous questions regarding bank safety and insurance coverage on deposits. These consumer concerns are warranted, given the highly publicized meltdown of the subprime mortgage market, housing market crisis, IndyMac Bank issues, state of the overall banking industry, etc. I want to take this opportunity to address some of the more frequently asked questions.

Are my funds insured? The Federal Deposit Insurance Corporation (F.D.I.C.) insures deposits at member banks. Make sure that your bank is F.D.I.C. insured. The F.D.I.C. does not insure stocks, bonds, mutual funds, life insurance policies or annuities. The basic insurance amount is $100,000 per depositor per insured bank. The F.D.I.C. provides separate insurance coverage for deposits held in different categories of ownership: $100,000 for individual accounts, an additional $100,000 for joint accounts, and an additional $250,000 for Individual Retirement Accounts; Revocable Trust Accounts (Payable-On-Death accounts, Living Trusts or Family Trusts) may also be covered up to $100,000. Contact the F.D.I.C. at 1-877-275-3342 for more information. Your bank may also offer private insurance for deposits in excess of F.D.I.C. limits.

Is F.D.I.C. insurance safe? Yes, the F.D.I.C. is an independent agency of the United Sates government backed by the full faith and credit of the United States government.

Is my bank safe? All F.D.I.C. insured banks must meet standards for financial strength and stability. The F.D.I.C. considers capital, asset quality, management, earnings, liquidity and sensitivity to market risk in determining safety and soundness. Size of the institution does not have a direct correlation to safety and soundness. Although F.D.I.C. ratings on individual banks are confidential, several independent companies provide bank safety ratings. Two such companies are BauerFinanical Inc. and Bankrate.com, both of which can be accessed by the internet. I encourage you to look up the safety rating of your bank(s).

Should I always place my deposits at the institution paying the highest rate? No. You should be aware of the correlation between return and risk. Beware “irrational” deposit pricing. If a rate is significantly higher than the rates being paid by other local banks, it could be a “red flag” indicating liquidity problems at that financial institution. If the rate sounds too good to be true, it probably is.

Are Kentucky banks safe? Kentucky has historically been one of the highest ranking states for bank safety and soundness. Kentucky’s real estate market has not had the volatility of Florida, California, Nevada, etc. Kentucky banks typically invest funds in the form of loans within their local communities, have first hand knowledge of their local economies and are key figures in their local communities.

If you have concerns, contact your local banker, who will be there for you.

John N. Manning, President

Bedford Loan & Deposit Bank