In America, we have let our guard down when it comes to our
banking relationships. We assume that everything will be fine if
our bank fails. After all, theFDIC insures our deposits up to
$250,000. Why worry?
I hate to break this to you, but the FDIC's Deposit Insurance
Fund (DIF) -- AKA the money used to cover bank failures -- has been
all but drained.
In 2007, the DIF had a healthy $52.4 billion. But since 2008
(after the housing meltdown), more than 413 banks have failed, and
it's taken a devastating toll on the once-solid reserve fund.
The balance in the DIF at the end of the second quarter of 2012
was just $22.7 billion, according to the FDIC -- almost
57% below where it was before the financial crisis. And while the
FDIC also reported that banks are on slightly better financial
footing than last quarter, there are still a staggering 732
"problem banks" that are carryingtroubled assets totaling $282
billion. By comparison, the FDIC identified just 76 problem banks
by the end of 2007.
I don't know about you, but I'm not willing to assume that the
FDIC will always be there to cover my savings. Instead, I want to
pick the safest bank in my area, so that I know the FDIC will never
have to get involved.
Each quarter, I use FDIC data to calculate a very special metric
called the "Texas ratio ." It was developed by a financial
wizard named Gerard Cassidy who used it to correctly predict bank
failures in Texas during the 1980srecession , and again in New
England in the recession of the early 1990s.
The Texas ratio is determined by analyzing a bank'snonperforming
assets and its loan-loss reserves. While the ratio has been
excellent at predicting bank failures, it can also be used to find
the banks that are the furthest from failure.
The math can get complicated, but here's what you need to know
-- the closer the Texas ratio gets to zero, the lower the bank's
risk of failure. Once the ratio gets above 1.0, things get a little
To illustrate, here's a list of the last 10 banks that were
seized by FDIC. In every case, the Texas ratio is above 1.0.
Recently Failed Banks
|Waukegan Savings Bank
|Jasper Banking Company
|Second FSL Association of Chicago
|First Cherokee State
|Georgia Trust Bank
|The Royal Palm Bank of
|Glasgow Savings Bank
And out of the five largest banks in the United States, none
have a perfect score, but Chase and Citibank come closest to the
Largest Banks In The United States
|Bank of America
|Wells Fargo Bank
Right now there are more than 7,300 banks in the United States,
but only 383 of them can boast a perfect Texas ratio of
Click here to see the entire list