Image: Washington Mutual ATM machines
Fred Prouser  /  Reuters
Federal regulators are reaching out to large banks in an effort to organize a buyout of Washington Mutual.
By M. Alex Johnson Reporter
msnbc.com
updated 9/18/2008 2:23:06 PM ET 2008-09-18T18:23:06

Despite the stomach-churning drops on Wall Street and the bad news about failing financial institutions, ordinary investors do not appear to be streaming to banks and brokers in large numbers to pull their money.

Government regulators and financial experts have blanketed newspapers and television news shows with reassurances that most people’s money is safe, despite the weekend collapse of Lehman Bros., the sudden sale of Merrill Lynch and concerns about the future of Washington Mutual.

So far, it seems, the vast majority of depositors are watching from the sidelines, said Michael M. Heller, president of Veribanc, a national bank rating service. He said his company had seen an uptick in the number of calls and online visits as depositors checked their banks’ status, but no unusual increase in withdrawals.

While the economy is “scary,” said Sharon Baillargeon of Orrington, Maine, she’s not worried about her own assets.

“I’ve got the money invested, and what happens to it is just up to the economy,” Baillargeon said.

Likewise, Sue Benson of Bakersfield, Calif., is not yet ready to take drastic action, even though, she said, “the construction is down [and] the gas prices are up.”

There may not be enough money to cover everything, Benson said, but “life has to go on.”

‘Everything is insured’
Regulators and financial advisers said that was the wise course, pointing to the history of brokerage failures and to Federal Deposit Insurance Corp. rules that protect the great majority of bank customers.

Many brokerage accounts are covered by the Securities Investor Protection Corp. up to $500,000. As for the others, said Jeff Ross, president of Jeff K. Ross Financial Services in Portage, Mich., “you never hear of a brokerage firm and their investors not coming to terms and taking care of their accounts.”

For everyday Americans worried about their banks, things are actually better than they might seem despite the upheaval in the financial industry, said David Barr, a spokesman for the FDIC.

In 1988, at the height of the savings-and-loan crisis, there were 206 bank failures, Barr noted.

Major Market Indices

“So far this year, we’ve only had nine total," he said. "It’s nowhere near what it was in the S&L crisis.”

Heller said banks and S&Ls will pull through just fine, because most are in better shape today after the massive bank failures of the ’80s, when the government tightened regulations.

"We’ll probably see a few more small banks fail, but no more than average for the past dozen years," Heller said.

What to do if the worst happens
What if your bank does go under?

The FDIC insures deposits, including checking accounts, savings accounts, money market deposits and certificates of deposits in covered banks and savings instituitions, up to $100,000, which covers most people. Retirement accounts are insured up to $250,000.

To find out whether your accounts are insured, you can check the FDIC Web site.

After the failure of IndyMac Bank of Pasadena, Calif., the FDIC’s reserve fund of $45 billion has fallen below the minimum target set by Congress . FDIC Chairman Sheila Bair is considering turning to the Treasury for a short-term loan if needed, and she plans to propose increasing the premiums paid by banks and thrifts to replenish the fund.

Most at risk are small companies that do business with only one institution, said Lawrence B. Lindsey, President Bush’s former White House economic adviser, who called on Congress to raise the insurance limits.

“A lot of small businesses that have to meet payroll or pay vendors — any business with 20 or more employees — basically has to keep at least that amount [$100,000] in the bank,” Lindsey said. “Unless we find a safe place for people to put their money ... we’re in trouble.”

Financial experts said small businesses and individual depositors with more than the insured limits could take several steps to cover themselves, mainly by spreading their money around in accounts in separate banks that come in under $100,000.

If you have two savings accounts at your bank totaling $150,000, only the first $100,000 would be protected, but if you split the money up into $75,000 accounts at different institutions, you’re safe.

Another common way to get around the insurance limits is to open joint accounts with each of your children, said Rolland Johannsen, senior vice president of retail banking at First National Bank Omaha in Nebraska. The child’s half of that account is not included in your insurable total.

“At First National Bank, we’re part of a holding company, so we have the option for customers to keep the maximum deposit with us,” Johannsen said. “We can open additional accounts at affiliated banks,” allowing customers to have access to money through First National branches.

The key, said John Emery, dean of the School of Business and Public Administration at California State University-Bakersfield, is “don’t panic.”

“Just sit still,” Emery said. “History shows it will work out.”

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