October 21st, 2008
How Will Bank Failures Affect You?
As the news gets into a frenzy over the recent bank failures, the failed bid for a bailout and the continuing bad news about the economy, many consumers are left wondering just how these bank failures and other events will affect them personally. While there is no one answer, this is a time for caution, but not panic. The vast majority of people will see no real difference in how their money is handled, and so far, the bigger banks appear to be coming to the rescue.
For those that have funds with a bank that will soon be under new management, there should not be much change in the day-to-day routines. Over time, new privacy rules may be updated, according to different company policies and name changes may also occur. For now however, the banks that have gotten assistance or have been purchased by other companies will most likely remain in operation as if nothing had happened.
The worst thing that consumers can do when they are concerned about a bank failure is to immediately pull out all of their money or stop making deposits. This was one of the main reasons that the curtain closed so quickly on Washington Mutual. Investors and customers caught wind of the trouble in the air, and stopped putting their money in the bank. As a result, when the daily deposits dropped off sharply, the situation was compounded.
While it is only human nature to want to rescue your money, suddenly drawing it out only contributes to the problem. For now, worst case scenarios don’t involve losing your funds, and since the vast majority of banks offer FDIC insurance on funds up to $250,000, most consumers are completely protected. If you have deposits in excess of this amount, there are also special stop gaps in place to make sure that you don’t lose your money.
It is all too easy to get caught up in the whirlwind and star to see doom everywhere you look, especially if you have been glued to news about banks. However, for most, it is business as usual. That is not to say that there are not some severe problems with some banks in the United States as well as the UK. However, panic is the worst thing that consumers can do at this time.
Instead of rushing to stuff your money in your mattress, it is best to stay calm, read up on the situation from solid sources and wait to see what happens. You may also want to contact a financial advisor if you are truly concerned about what will happen to your money if your bank does fail. By reducing the amount of panic that is running rampant in the industry, banks will have time to get back on their feet and go back to running as they usually would. Consumers can assist this effort by making smart money choices and refusing to give into the herd mentality that can cause even more economic problems.
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Another fascinating article, thankyou. I will be using it in my coursework and also referencing analysis. Please keep up the great work.
Maggie