With banks failing in droves, how have your expectations changed? 13 banks have failed in 2009. Only (and I say only in a VERY relative sense) 25 banks failed in 2008. 3 banks failed in 2007

Important things to note about bank failures (in easy to understand terms!):

When a bank closes there are a few options, two of the primary being

• a Purchase & Assumption – a bank that is in a healthier state acquires ownership of the failing back in which it backs all of the deposit liabilities (meaning it now owns all of the FDIC insured accounts)
• a Liquidation – when there are no interested bids for acquisition the FDIC sells off any salvageable assets and pays out the insured deposits up to $100,00 per account. This has been temporarily increased to $250,000.

So What Should I Do?

How should you react? Most articles I have read have said that it is pretty hard to spot a failing bank. Being that its so hard to spot a failing bank… Just make sure you are under the FDIC limits! That means do not put the full $250,000. Put $230,000 or so to be safe so that you do not lose any accrued interest.

Really, this should not be too much of a concern though. Since FDIC began in 1933, they have not allowed a single major bank to fold out of fear of throwing the whole financial markets into a tailspin.

I have read a few things on the Texas ratio in trying to figure out how to analyze different banks and I would be interested to see if any readers have some incite into the application of that measure.  It is “calculated by dividing the value of the lender’s non-performing assets (Non performing loans + Real Estate Owned) by the sum of its tangible common equity capital and loan loss reserves.” If you think about that formula logically, the closer to 100% we get the riskier the bank is. Which is scary. Very scary. I would be interested to see how well the Texas Ratio correlates to those banks failing.

Texas ratio aside… with all that has been happening has anyone resorted to sleeping with your money under your mattress :p? Are you sticking to conservative investments (and if so, what is conservative for you?) or are you going full-steam ahead with your normal portfolio?