By Nico Issac
- So far in 2010, the number of US bank failures has reached 25, a rate of two per week. This compares to 25 total bank failures for ALL of 2008, and three for 2007.
- The benchmark KBW Bank Index still stands 60% below its 2007 peak, while one-third of all US banks reported a net loss for 2009.
- The FDIC’s list of "problem" institutions rose from 552 to 702 from Q3 to Q4 of 2009.
- And each new day could bring a new, personally addressed letter to announce the name change of your financial institution.
Yet — no matter how grave the data gets, few people imagine the corporate banking crisis trickling down to average Joe or Jane and their lollipop-dispensing drive-through bank tellers.
It’s not naive to think that, either. The agreement is understood: Money goes into the bank as liquid capital, and comes out as a loan certificate. Practically speaking, your account balance is only as secure as the loans the bank makes with its depositors’ money. The trust in that exchange reflects two main beliefs:
1) Banks know best how to allocate their clients’ money so as to ensure the greatest risk-to-reward ratio.
2) Banks are guaranteed by the Federal government, via the Federal Deposit Insurance Corporation.
Well, as the latest report from our complimentary Club EWI service reveals — neither one is as it seems. This 15-page exclusive compiles the most groundbreaking insights from various collected works of EWI president Bob Prechter himself, including: the best-selling book Conquer the Crash and previous Elliott Wave Theorist publications. Off the top are these riveting thought-burners:
How are banks using your money? Not wisely. "At latest count, US banks report $6.942 Trillion in deposits, and $6.945 Trillion in loans. In other words, the average bank in the US has lent out 100% of its deposits."
Where is your money going? For the most part, it’s tied up in mortgage-backed securities. Last count: One in every 418 U.S. homes have filed for foreclosure, while the rate of default on commercial mortgages doubled in Q4 of 2009. See the problem?
What about the trusted sticker in the front window of US banks assuring that the FDIC guarantees to refund depositor’s losses of up to $100,000? Well, as the Club EWI report reveals, this sticker is merely a "symbol of confidence," NOT a certainty of it. The piece goes on to add:
"Did you know that most of the FDIC’s money comes from other banks? When the FDIC rescues weak banks by charging healthier ones higher ‘premiums,’ overall bank deposits are depleted, causing the net loan-to-deposit ratio to rise. Ultimately the federal government backs the FDIC, which sounds like a sure thing. But if tax receipts fall, the government will be hard pressed to save a large number of banks with its own diminishing supply of capital. Huge illusions can melt away in a flash if the system fails."
Where then is a bank I can trust? Here, the Club EWI report provides a list of the Top 100 highest-rated banks in America by state based on third-quarter 2009 data. The publication also reveals the global jurisdictions that "provide wealth preservation service as opposed to interest income and daily transaction conveniences."
Inside the revealing free report, you’ll discover:
- The 100 Safest U.S. Banks (2 for each state)
- Where your money goes after you make a deposit
- How your fractional-reserve bank works
- What risks you might be taking by relying on the FDIC’s guarantee
Please protect your money. Download the free 10-page "Safe Banks" report now.
Nico Isaac writes for Elliott Wave International, a market forecasting and technical analysis firm.