IndyMac, Economic Troubles Raise Concerns Over Banks | Region's financial institutions have solid ratings from BauerFinancial
The recent failure of IndyMac, based in Pasadena, Calif., has brought the specter of bank failure into the public consciousness again, causing consumers to check up on their banks.
“Definitely, more people are concerned about the financial condition of their bank, but I think unduly so,” said Karen Dorway, president of BauerFinancial, a Florida company that rates financial institutions and products. The country has 8,500 banks and only 300 of them have been rated as problematic or troubled, she said, and only five banks have closed their doors this year.
Concerns Sparked
“Since the news about the housing market and mortgage issues began, about a year ago, we’ve seen more consumers checking with us, but on July 14 it really took off when the news about IndyMac became public,” she said.
The same concerns don’t seem to have surfaced about credit unions, which are also rated by BauerFinancial, according to Dorway.
BauerFinancial has been rating institutions since 1983, with a system that rates them on a scale of zero to five stars, with five stars being the strongest. The company takes the detailed financial report that each bank and credit union is required to file quarterly with federal regulators, analyzes the data and compares it with the institution’s historical performance.
Ratings of five are superior, four are excellent, three and a half are good and three are adequate. Financial institutions do not pay to get rated by BauerFinancial.
A rating of two means the bank’s financial health is problematic and one means it is troubled. There is also a rating of zero, which is the lowest and is beyond troubled, and NR means not rated because it has under $1.5 million in assets or is not federally insured.
Locally, the news looks good, according to Bauer’s ratings. There are 180 banks based in Massachusetts. Of the 35 banks based in Central Massachusetts, BauerFinancial rated 24 of them five stars, four banks rated four stars, five banks rated three and a half stars and two banks are rated three stars.
Banks with a rating of three stars or more are healthy, Dorway said, some are just healthier than others. “If a bank meets your needs and is fully insured and you are satisfied, then that’s fine,” she said.
Numbers Game
Consumers shouldn’t be concerned unless their banks are rated two or below, denoting financial problems.
Of the 229 credit unions based in the state, 28 are based in Central Massachusetts. Of those, 18 were rated five stars, five were rated four stars, four were rated three stars and one did not receive a rating because its assets were below $1.5 million, according to BauerFinancial.
Credit unions, unlike most banks, are owned by depositors and account holders. While it is understandable that consumer confidence in lending institutions might be a little shaky at the moment, it is unlikely that there will be many bank failures.
“There are certainly challenges in the banking industry, but this is a not a crisis situation,” Dorway said. “For most people, their money is fully insured.” Bank deposits of up to $100,000 are insured by the Federal Deposit Insurance Corp., a federal agency.
If a consumer is looking for a new bank, she suggests they pick several banks that meet their needs in terms of fees, services, as well as ATM and branch locations, then check to see how the institutions are rated before choosing a bank.
“If you’re going to choose a new bank, you may as well choose the stronger bank,” she said.
Click here for a list of local banks and their BauerFinancial ratings.
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