How Safe is Your Bank?*

by David Tanner
March 24, 2008

"Last week, JPMorgan signed an emergency deal to buy Bear Stearns for 0.05473 share, valued at roughly $2 a share at the time. The rapidly signed agreement came after investors began pulling money out of Bear Stearns amid fears of a liquidity crisis, creating a cash crunch at the bank that would have sent it into bankruptcy absent a buyout. " JP, Bear Stearns Reach New Deal

The recent buyout of Bear Stearns by JP Morgan has fueled a new round of speculation regarding the safety of financial institutions.

Bear Stears was reportedly worth $159/share last year, and is trading today at $10/share, a 94% loss.

The Fed's $30 billion bailout to keep Bear Stearns from sliding into bankruptcy is a bold move designed to keep investor's in similar financial institutions confidence up, to prevent further runs.

Should this have happened, followed by similar runs on other investment banks, the Fed knows it would not not have been able to bail-out the entire system. In such an event, a systemic collapse would become a real possibility.

In such a scenario, the spillover into commercial banks and s&ls would only be a matter of time, exposing the FDIC for what it really is......a public relations move to keep confidence in the system.

In light of the above, it would behoove investors to check into financial stability of their bank. In the event of another Great Depression-type financial meltdown, depositors would only receive back a fraction of their deposits. Obviously, one would prefer to have their money in "A" rated institutions.

Our system has flirted with collapse many times in the past, and sooner or later, the inevitable will happen. Will it be this time, or 50 years from now? Who knows? But it is very easy to protect oneself by dealing only with "A" rated institutions, as well as diversifying one's remaining assets among stocks, bonds, and precious metals.

Follow the link to the right to check your bank's rating.