10/17/2017

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Bank Failures
What you should know about bank failures!
by John M. Roberts

Although bank failures are not a new phenomenon, they still send shivers throughout the banking industry and bring fear and anxiety to depositors, the stock market, and the economy as a whole, and in turn, may cause worldwide panic if the federal government doesn't act quickly to assure the people that the problem is fixable and will not cause long term damage to other segments of the economy.

When bank failures do happen, it causes investors and government officials to pause and take a long look at the reasons why the bank didn't live up to the promises and expectations of it's customers, or to the rules and regulations that were set up by the federal government, rules that were put in place to protect depositors and insure that a bank remains solvent.

Over the past few years, many banks disregarded rules and guidelines set up by the Federal Reserve System and did business without the oversight of banking regulatory institutions that were set up to monitor lending practices. Many banks made loans that were suspect from the beginning, if not totally criminal in their origination.

During that time, many lending institutions, and other companies that were involved in the mortgage, loan, real estate, and other related businesses, put profit before practicality. Since there was little or no oversight, they saw an opportunity to lend large sums of money on properties that were ridiculously over inflated, they bought and sold unreasonably packaged loan products, and gave loans to individuals who had absolutely no means of repaying them.

In many cases, the lenders did not check the credit history, verify employment, or require adequate down payments from many individuals to whom the lenders gave loans. In some instances, no down pay was required at all, or the down payment was borrowed money from other sources and secured by another loan, or second trust deed, on the property.

Countrywide Home Loans and IndyMac Bank are just a couple of the banks and lending institutions that have recently made headlines on the evening news, but there are many more that are teetering on the edge of insolvency and many will be made known the coming months and years.

Those who can remember the banking crisis of the late 1980's and early 1990's can probably remember the names of Lincoln Savings and Loan and Silverado Savings and Loan, two high profile lending institutions that failed, costing taxpayers billions of dollars.

Before the crisis is over and the economy regains it's footing, the banking industry will be forced to go through many changes. There will be criminal indictments filed against many of those who skirted, or totally ignored the law, and some who were involved will face legal consequences, heavy fines, and probable jail time.

The current banking crisis has many people wondering about the state of the economy and how bad it will be this time. But like all times of economic down turns, the federal government is poised to step up and do what is necessary to make the situation bearable.

Although depositors are concerned about their money, the Federal Deposit Insurance Corporation (FDIC) insures individual accounts for up to $100,000, joint accounts up to $200,000, and retirement accounts up to $250,000.

It will take strong measures to clean up the current mortgage crisis, but in order to correct the situation, everyone is going to have to shoulder some of the burden, especially taxpayers.

 

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