TAKING STOCK

You can bank on FDIC protection

Dear Mr. Berko: I have $289,000 in certificates of deposit at my bank and I'm hearing they are going to close up because of bad real estate loans. If I cancel my CDs I will have to pay a penalty on $289,000, which would hurt my income. I'm also concerned that I have more than $100,000 in the bank and that it's insured only for $100,000 and I could lose $189,000. The bank manager tells me that I'm insured and that the bank isn't in trouble, but I know they want to hold as many assets as possible so I'm not sure if I should believe him. Please advise me because I'm worried.
S.P.
Port Charlotte, Fla.

Dear S.P.: My dad use to say that worry was interest you pay on trouble before it happens. Nothing is ever as bad as it seems and conversely nothing is ever as good as it seems, either. But you have nothing to worry about because the Federal Deposit Insurance Corp. has got you covered, like white on lace.

Banks are audited twice a year to make certain that everything is according to ledger. But if your friendly neighborhood gets into a tub of financial hot water, I have three recommendations for you: (1) Stay easy, (2) stay the course and (3) stay out of line at 2 a.m.

First, know that your deposits are insured by the FDIC for a minimum of $100,000. And if you're a member of that elite club with more than $100,000, your banker has certainly counseled you on titling your cash cache in excess of that $100,000 to maximize your protection. If you're among the elite, it's probably a good idea to check with the lass or lad at your bank and make certain that the excess above $100,000 is properly titled so it's FDIC insured.

Up until November of 2007, I had some CD money at Coast Bank in Florida. I knew Coast (used to be a public company) was in humongous trouble due to a series of really bad real estate loans in the Naples/Sarasota/Tampa Bay area, which management was suckered into making. The resulting cash crimp encouraged Coast to offer nine-month CDs at 5.85 percent in March of last year, a rate which was impossible for me to ignore, so I loaded up for nine months. Yipsee doodle! My CDs were properly titled and 100 percent insured by the FDIC so I dangled easy, sipped mint juleps in the noonday Florida sun and waited for the inevitable.

On the weekend of Nov. 9-11, before I could say "sore small toe" three times quickly, the auditors had appointed a new bank (First Bank of St. Louis) to take over all the assets and liabilities of Coast. And before I could say, "Gesundheit!" First Bank had its new bank signs bolted on every Coast subsidiary from Naples to Sarasota and to Tampa. All it took was a few passwords, a few new keystrokes, a new combination to the vault plus new door keys. And most depositors didn't have inkling of an inkling that it happened until several days later when they got a computerized letter in the mail.

Old management resigned in shame (as well they should), the vault still opened at 9 Monday morning and almost all the same faces were at the same desks and deposit counters. My Coast checks were still good as before, all direct deposits will continue as instructed, all loans will continue till it's time to renew, the phone number stays the same, there are zero restrictions on cash I may have felt compelled to withdraw, my CDs remained at 5.85 percent (though the new bank is not required to maintain that rate), mortgage commitments were still honored at the previously agreed terms (provided they were sound), I kept the same passbook, the key to my safe deposit box didn't change and it was business as usual. There will be new management though and possibly a new branch manager and new bank stationery. Basically it's a nonevent.

The auditors knew that Coast was sinking months before it happened and the FDIC has a list of "ready-banks" that on short notice have the ability to step into a mess, clean house and maintain continuity and public confidence. That's exactly what happened to the former Coast Bank. And if your bank is leaking, foundering or floundering, the FDIC is ready and waiting with all the resources it needs at its immediate disposal. And you'll never know it happened till you get a computerized letter in the mail.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net.

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