Safety and Soundness Transparency to "Main Street" Consumers

I start with a story.

Ever since the demise of Pasadena, California based IndyMac consumers have been clamoring to answer one question "Is my money safe at my bank?" I got hit with this question the Wednesday of the week of the run on Indy by CBS News reporter Bill Whitaker for a sidebar piece that aired on the CBS Evening News with Katie Couric immediately after the day's coverage of Paulson, Bernanke, Cox testifying to congress about the crisis. Can you say pressure cooker moment? I decided that was a day to help calm national nerves and conducted the interview accordingly. But when asked the question how does a consumer know how healthy their bank is really is my honest answer was it's opaque. The only information out there were Call Reports real people didn't stand a chance of reading and legacy ratings geared more towards people investing in bank stocks than depositing money. So the final soundbyte that aired out of my mouth was "people are going to have to learn to do their homework".

Off camera Bill asked me if I could make the information needed by regular Americans "not opaque" and I promised him I'd try. That's how the online sales version of my company's IRA Bank Reports went from idea to product. The challenge was to distill the thousands of banking metrics from Call Reports into simple indicators relevant to the decision concerns of depositors.

The demand from we've seen from "consumers" has been amazing in it's sheer variety. We've seen high net work individuals, their financial planning professionals, corporate treasurers, municipalities and 501(c3)'s checking on their banks and making investment and divestment decisions based on what the transparency reveals. We've seen people select and lock out banks from their brokered deposit strategies based on criteria they've decided is appropriate to their risk appetites to coin a concept from COSO.

Do you think this is this the new "post blind faith" world of banking?

Tags: and, brokered, depositors, deposits, ratings, safety, soundness

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Permalink Reply by Gary Schurman on March 25, 2009 at 9:54pm: No, I think that its temporary. The one nice thing about investing in banks is that in a way the Federal Government is "looking after my investment". Because the government is on the hook if the bank fails, the government is going to make sure that the bank has adequate capital and reserves to survive adverse events, and is going to make sure that the bank does not take inordinate amounts of risk. As a bank investor, my interests and the governments interests are pretty much the same. If the government is looking after their own interests then by default they are looking after mine. Actually, the government may be more risk averse than me.

In light of what has happened recently the above statement may sound pretty stupid but I think that once we exit this banking crisis and the Fed makes its regulatory changes then we will go back to where we were - banks will be relatively safe investments, investors won't read Call Reports, and they won't do their homework.

The only real metric that I look at is risk-based capital ratios. To the extent that that ratio is over 10% then I feel pretty safe. If a bank can make an good ROE on a large capital base (>10% risk based capital) then that bank is the ideal candidate for investment.; ▶ Reply to This