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Sunday, October 12, 2008

WIll Your Bank Weather The Storm?

Oct 12, 2008
Use these THREE measures to find out:

  • Risk-based capital ratio

    The FDIC mandates that a bank's risk-based capital be no less than 6% of its total assets. You'd like a little more cushion than that--perhaps 8%. To find this ratio in the call report, turn to the Regulatory Capital section, called Schedule RC-R, and look for the line item "Total risk-based capital ratio."

  • Loan-to-deposit ratio

    The larger that percentage, the greater the risk the bank has taken on. If customers begin to pull deposits, the bank might be suddenly strapped for cash.
    It should be between 95% to 105%. To find this measure, divide "loans and leases, net of unearned income and allowance" (item 4.d. in Schedule RC-Balance Sheet) by "deposits" (item 13 in the same Schedule).

  • Amount of non-current loans (those 30 days or more past due) vs. total amount lent.

    To calculate your bank's percentage, divide the total dollar amount of loans that are 30 days or more past due (found in Schedule RC-N) by total loans and leases (again, item 4.d. in Schedule RC-Balance Sheet).

  • If your bank is struggling and the FDIC takes it over, know that you may not have access to your funds for several days during the change-over period. To be safe, small-business owners should have a week's worth of operating expenses deposited at another institution.

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