If you’ve been watching the news this week, you’ve seen that a number of financial institutions are struggling. Washington Mutual is particularly in the spotlight — while WaMu claims to have enough capital to make it through these difficult times, two ratings agencies have downgraded its debt.
WaMu is the largest savings and loan in the U.S. But with the downgrade of the company’s debt, it’s clear that not all of WaMu’s creditors think that they’ll last. The bank’s stock prices look like a roller coaster — with a major downward trend. So far this year, WaMu’s stock has fallen almost 80 percent.
While investors are particularly worried, those of us with accounts at WaMu may not be too heappy either. Things aren’t dire, but it’s time we start keeping closer tabs on what our particular banks are up to.
Bankrate is a good place to start if you want to check up on your bank’s rating. The site provides you with two different scores for any bank or credit union you look up. The first is the Bankrate.com Rating, a scale of one to five, with five as the best. The second is the Safe & Sound CAEL (Capitalization, Asset Quality, Earnings and Liquidity) rating, a scale of five to one, with one as the best.
If you look up a few banks through Bankrate, you’ll notice that most banks are doing okay and some are doing poorly. Basically, no bank is scoring higher than a 3 and 3 rating. There are multiple listings for some banks that do business in multiple areas. The Washington Mutual Bank (Henderson, Nevada) has a 1 and 5 rating — the worst you can get.
These ratings aren’t perfect indicators — and not all of them have been updated recently. AIG, also in the news today because the company needs as much as $75 billion to stay afloat, still has a rating of 3 and 3.
Despite imperfect ratings, Bankrates remains a good starting point. I wouldn’t pull my money out of a bank just because of their rating, but Bankrate’s information provides a good starting point for further research.
Beyond Bankrate, you have a couple of options for tracking information about your bank. You can stick to newspaper articles — but the nature of newspaper reporting is that they’re talking about something after it happens. Instead, I’d recommend look at the information available to investors considering buying stock in your bank. Information like where the stock is trading can help you determine how investors see your bank. Whether investors are willing to buy a given stock indicates whether experts think that a financial institution is going to rebound. If a stock’s price is dropping, however, you know no investors wants to take the risk.
Can you afford that kind of risk? You’re actually in a better situation that investors. The FDIC probably guarantees your deposits, meaning that if a bank goes under, you will still have your money. Just the same, we should all be keeping a close eye on just how our banks are doing.
