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A crash course in bank safety

"How safe is my bank?" Depositors are asking themselves that question as more bad news pours out about financial institutions going down the tubes.

The estimates range from a Federal Deposit Insurance Corp. "hit list" of 1,044 problem banks to a Washington Post Co. study that puts the total closer to 2,000.

Two thousand more banks might go kaput? What are you supposed to do, build a bomb shelter for your cash?

No. You take a refresher course in how federal insurance protects your deposits. You learn where the strong banks are. And you make your moves accordingly.

The average consumer would flunk an FDIC insurance quiz, so know this first:

Step 1: Accounts are insured for up to $100,000 per person at the same institution, including principal and interest. Deposits of more than $100,000 are not insured.

Up to this point, no one has lost a dime as long as they kept their balance below that $100,000 ceiling. Until recently, even amounts above the figure have been covered by FDIC _ but that protection is disappearing fast.

Yet it's still possible for a family of four to arrange joint and trust accounts at the same bank to insure up to $1.4-million if accounts are set up correctly in the eyes of federal insurers.

Some sharpsters have tried to wriggle around the rules in other ways by opening accounts in different names or different Social Security numbers. The bottom line is this: The FDIC wants to know who owns the money. That's the person who's covered at Megabuck Bank for up to 100 grand for all his accounts there.

Step 2: Keep your money at strong banks, thrifts and credit unions, not weak ones. Even though you enjoy the $100,000 protection, the inconvenience you suffer when the institution fails may not be worth it.

Check an outfit's strength several ways:

The cheapest shortcut is to see whether the bank has been profitable at least four quarters in a row.

Get the bank's last quarterly statement. Look for alarm bells, e.g., whether its earnings are going up or down, if it has provided for big loan losses and real estate write-offs. An equity-to-assets ratio of 5 percent or above is desirable.

Make a toll-free call to Veribanc Inc. in Wakefield, Mass. (1-800-44-BANKS), an independent research company that evaluates the financial conditions of institutions. For $10 on your credit card, you can get an instant safety rating over the phone of any bank, with a printed confirmation mailed the next day. For $45, you can get a detailed 50-page report.

Step 3: If you sense your bank is in trouble, get your accounts in line in a hurry before you move your money.

Close out checking accounts only after the last check clears. Time your bank switch so your old bank won't charge the next month's fees. Don't close out CD accounts that charge stiff early-withdrawal penalties, because you'll be covered up to $100,000 if the bank goes under.

Your personal loans will have to stay put until the Feds take over. No problem with mortgages; the lender probably sold them off after you closed on the loan.

Watch this one carefully:

The trend has gone against depositors with more than $100,000 getting all their money back when a bank fails. Since 1982 the FDIC has began slowly backing away from covering amounts above that level.

Now, the FDIC is being pressured by Congress to further "haircut" insurance coverage so that only amounts up to $100,000 will be covered.

And amounts under $100,000? You're safe for now, but the future hangs on the presidential election and an expected big turnover in congressional committees. There'll be new questions, new issues emerging.

You can be sure that FDIC insurance will be one of them.

Latest rate trend: Bad news. CD yields are dropping faster, with Bank Rate Monitor's ratio of decreases to increases widening to 32-to-1 from 8-to-1. Mortgage and auto loan rates are falling.

Robert K. Heady publishes Bank Rate Monitor, 100 Highest Yields and other financial newsletters from his office in North Palm Beach.