Bank Failures - FDIC Watch List Grows to 117 Institutions

IndyMac Bancorp—once the nation’s 10th largest mortgage lender—has gone belly-up, leaving approximately 10,000 uninsured depositors high and dry. These guys will be lucky to recover 50% of their uninsured money.

There are now over 117 financial institutions on the FDIC watch list, which includes:

Lehman (LEH)
Washington Mutual (WM)
Fannie Mae (FNM)
Freddie Mac (FRE)
Corus Bank (CORS)
BankUnited (BKUNA)
Downey Savings (DSL)
Wachovia (WB)
Regions Financial (RF)
MBIA (MBI)
Ambac (ABK)

I want to draw your attention to the last two names on the list, MBIA and Ambac. If you own AAA insured bonds that are not U.S. Government bonds, then one of these companies is probably insuring that bond. If they were to fail, then you have no insurance on your bond. This really could spell trouble for the security of your investment portfolio if you bought the bonds simply because they were insured, rather than scrutinizing the company that issued them.

What can we learn about managing your money from the IndyMac failure?

Put simply, never put your eggs in one basket.

Limit accounts to FDIC maximums

The combined balance of your savings and checking accounts is federally insured for up to $100,000 per person, per bank (joint accounts for up to $200,000). IRAs are separately insured for up to $250,000.

Some depositors are losing money that was with IndyMac because they kept more than $100,000 in checking or savings accounts. If you need to keep more than $100,000 in checking or simple savings, open multiple accounts at different banks.

Invest in your employer carefully

Finally, never invest primarily in one company—especially if that company is your employer. Anytime a company tanks—and I’m sure IndyMac is no exception—loyal employees not only lose their jobs, but they lose their nest egg, too. No company is immortal and no investment is a sure thing.

While employee stock purchase plans may make it attractive to invest heavily in your employer, remember that any problem your employer encounters down the road is double trouble: your job and you investments are at risk.

As always, look for alternatives that can alleviate the extremely high volatility that we are seeing in the market today.