Don't rely on rumor or fear when making financial decisions

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By The Staff

Ballard W. Cassady Jr.

Kentucky Bankers Association

On behalf of Kentucky's banking industry, and on behalf of the Kentucky Bankers Association's member banks and thrifts doing business in Kentucky, I want to take an opportunity to address consumer concerns and, hopefully, to alleviate fears and answer questions.

There has been a lot of local and syndicated press relative to the housing market crisis, the IndyMac Bank issues and the state of the banking industry in general. While there is no doubt that we are in difficult financial times, we still have to keep the problems in perspective.

We are, right now, entering an economic environment that is as bad as we have seen in more than 30 years, during which time Americans have had the good fortune to live in a growing economy. And, that growing economy has left us in a pretty good position, from a banking industry perspective, to weather a downturn.

The growing economy has allowed banks to grow capital, which in turn allows banks to invest in their communities through increased business and consumer loans. Increased business loans help stimulate business growth, which in turn stimulates economic health. This is exactly what has been and is happening in Kentucky. Kentucky banks, unlike some other lenders, have been more responsible in their lending practices and are not saddled with the burden of controlling high defaults on risky loans.

Kentucky banks are regularly and historically recognized by the FDIC as one of the highest-ranking markets for bank safety and soundness.

Since the creation of the FDIC in 1933, there have only been two years with no bank failures - 2005 and 2006. There have been more than 3,500 failures nationwide since 1934. Even though there are bank failures almost every year, there have only been 44 in Kentucky since 1934 (22 of which were before 1940) and none since 1991.

Of course, such statistics provide little comfort to people whose dollars are already being squeezed from so many different directions and they are looking for reassurance that THEIR BANK and THEIR MONEY are safe. So, it is important to remember that Kentucky banks have always prided themselves on being there for their customers and communities. Kentucky banks take their position as key figures in the local economy seriously and will do whatever they can to ensure that safety and soundness are not compromised. Our families are part of those communities as well - bankers are your neighbors.

For those customers who still fear for the safety of their savings dollars, make sure that you understand how FDIC insurance works. Here are some key points to remember:

Money in the bank is still one of the most secure ways to save. Mutual funds and other investments are not FDIC insured and are subject to market fluctuations. Funds held in investment accounts may actually be less secure during disruptive economic times than more traditional savings.

The FDIC was created to protect consumers and the banking industry. The FDIC holds more than $52 billion in assets to protect bank depositors, and that amount increases regularly through banks' assessments.

A bank "failure" does not necessarily mean that the bank is "bankrupt." It means that the regulators, including the FDIC, are sufficiently concerned about the particular bank's operations that they take control of the bank and manage its operations until such time as the regulators are certain that it can maintain safety and soundness. Under such action, it is possible that customers will suffer no losses at all, even on deposits in excess of FDIC insurance amounts.

Each customer is guaranteed a certain amount of FDIC insurance at each FDIC insured bank where he or she has accounts (which fully guarantees your deposits, at no cost to you, up to insurance limits).

To understand FDIC insurance, in the simplest form, an individual is insured for $100,000 per bank on individual deposits. That same customer can have an additional $250,000 coverage on certain retirement funds and an additional $100,000 coverage on funds held in joint accounts and, if named as a beneficiary on certain types of trusts, the same person can have an additional $100,000 in FDIC insurance.

Those limits apply at each bank that you hold deposits separately - thus, you might have more than $550,000 in FDIC insurance coverage at each separate institution where you have deposits. In addition, your bank may carry private insurance for deposits in excess of FDIC limits. The best way to determine if your deposits are covered is to check with your bank. The vast majority of individual customers are sufficiently covered by FDIC limits.

The issue of safety and soundness of your bank and your money is not a simple one, and you should not rely on rumor, fear or mass media reports for making serious financial decisions - in good times or in bad. Talk to your banker if you have concerns. They are there to help.

- Ballard W. Cassady Jr. is president and CEO of the Kentucky Bankers Association in Louisville.