What happens if you’re doing business with one of the banks that failed the recent round of stress tests?
Part of the process of rehabbing the giant monster mega-banks — in addition to the trillions of dollars they were given in bailouts — was that they were required to have more money on hand to deal with “what ifs?”
Well, the banks have now undergone their physicals (fiscals?) to see if something went wrong whether or not they’d go bust. And the picture overall was pretty good. The banks have rehabbed with taxpayer money and weaned themselves off a lot of the bad loans they made. By and large, they are healthy organizations now.
Don’t panic if you’re with an ailing bank
Yet some big banks didn’t pass the test. I won’t name them here because I don’t want to scare any of their customers.
Because the reality is there’s nothing you need to do at all as a customer if you’re with a bank that failed the stress test. You’re covered in two ways, really. At the most basic level, there’s FDIC coverage of $250,000 on your account. Beyond that, there’s backstop coverage, which means these banks still enjoy incredible backing from taxpayers.
After all the financial calamity of the recession and the bank’s foolishness that got us there, I’m sorry to report that nothing has changed in our system. The “Too Big to Fail” players would still be propped up by you and me as taxpayers if there were another financial meltdown. Sad, really.
So unless you run around with a quarter million in the bank, no change for you!
A tale of two banks for two kinds of customers
The truth is the big banks have no interest in you if you don’t have a high level of deposit dollars. That’s why they implement all kind of fees on the little guy all the time. The next fee to come will be the breathing fee! Who knows what comes after that!
In general, big banks are only interested in people with deposits of $250,000 or more. I laughed at a New York Times story about one big bank that has two branches on the same block in Larchmont, NY. One is marked clearly and is the public branch. The other is unmarked and is only for wealthy customers. When they come in, they get snacks, drinks and comfy chairs to sit in!
Everybody else, if you want to stay with a big bank in today’s world, you’re gonna pay with all kinds of fees. It’s your choice.
So the stress test shows that things have improved. My big reservation is that we’re not at a point where we’ll let them fail if they get into trouble. They know it, Wall Street knows it and Washington knows it. But that’s gotta change because it’s no way to run a capitalist system.