30 July 2009

How to check the financial health of your bank or credit union

This may be the most useful post I've offered in the "economics" category this year. The Minneapolis Star and Tribune has been running a series of articles about the consumer lending industry.

The first article discussed the small banks of Minnesota and how they got caught up in the hot real estate market of the state in recent years. Interestingly, as noted in the graphic above, Minnesota has more banks than California, Florida, or New York (because there are more small community banks and fewer large ones).
"Real estate is the cocaine of the banking business."

In Minnesota, regulators have seized and closed two banks since 2008 and have ordered 16 others to clean up their balance sheets. Another 65 of the state's 430 banks and thrifts are on a secret watch list, and state banking officials expect more to fail as they are pulled down by bad real estate loans.

Minnesota ranks fifth nationally, with 50, or 12 percent, of its banks carrying particularly high levels of dead real estate loans...
The second article in the series details credit unions, which nationwide have departed from their traditional role of conservative community lenders and embraced high-risk loans.
Like their banking rivals, however, some of this state's largest credit unions abandoned the conservative lending principles that long made them bastions of safety. They pursued bigger, riskier and more elaborate loan deals in markets far removed from their everyday customers. And they embraced the booming housing market with gusto, making some of the same exotic home loans that sank such giant institutions as Washington Mutual and Wachovia.
Those articles obviously focus on Minnesota, and according to Google analytics only 2% of TYWKIWDBI visits come from Minnesota, so the links that will be more useful to most readers are the ones below, which provided the source data for the Star Tribune articles:

This is the BankTracker home page, with links detailing the methodology used for analyzing the financial health of banks and credit unions.

Use this link to search for data on a bank in your state.

Use this link to search for data on a credit union in your state.

I discovered that one credit union I've been using has an inordinately high ratio of troubled assets, which probably explains why they are currently offering above-average rates on CDs, to attract new assets to help cover potential losses. Credit union members are covered by insurance from NCUA equivalent to bank insurance by FDIC. What most intrigues me is the prospect of more banks and credit unions failing during the upcoming year, and what influence such events will have on consumer confidence, and thus on the equity markets. As unemployment persists, even if it does not increase further, more and more loans are going to be falling into the "nonperforming" category, even if foreclosures are somehow avoided. I just can't see a V-shaped recovery from this recession, or even a "U." I think it's going to be a long-tailed "L."

Approximately 1/3 of TYWKIWDBI visits come from outside the United States. I have no sources to offer you, but please feel free to use the comment thread to share any useful links you may have with others from your country.

Image credit


  1. Interesting, Stan! Thanks. After all, the better informed people are, the better people will be at making choices.
    Here are three links I find useful in Australia. They are mainly to do with making decisions about financing a home:
    Interactive loan calculator to help plan a mortgage strategy:
    Compare home loans and home equity loans, find best interest rates:
    Calculate stamp duty:

  2. Another method is to look at the Equity/Asset Ratio and Total Risk Based Capital Ratio. Troubled banks will have an E/A off less than 7% and/or a TRBCR of below 10%. This data can be viewed right on the FDIC website for banks.

    Most of the banks on the watch list have a E/A of less than 4% and a TRBCR of less than 8%.

    Another gauge is losses that are a large percentage or even greater than capital.


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