Friday, September 18, 2009

FDIC, Banks in Receivership, Your Certificates of Deposit (CDs)

Bank failures are on the rise and accelerating according to statistics released by the FDIC on its Failed Bank List which the FDIC has maintained since the year 2000.
Here are some quick statistics on annual failure rates:

2000: 2
2001: 4
2002: 11
2003: 3
2004: 4
2005: 0
2006: 0
2007: 3

From January 1 through June 30, 2008, there were 4 bank failures
From July 1 through December 31, 2008, there were 22 bank failures

From January 1 through June 30, 2009, there were 45 bank failures
From July 1 through September 11, 2009, there were 47 bank failures

The number of failed banks is increasing with an increasing frequency...more than doubling each semi annual period for the last 3 years.

Beware of the brokered CDs that are offered. Even if your CD is insured, if it is issued by a bank that fails, the FDIC will NOT refund the premium you paid for that CD and you could easily end up losing money. If your broker tells you the CD you are buying at a premium is non callable-beware. The FDIC can refund any CD at any time once a bank goes into receivership.

Curious about other anomalies in the fixed income markets? Talk to Blue Haven Capital.