An Alarming Warning on Banks: Here’s How to Protect Your Account
My colleague at TheStreet Pro, Bret Jensen, is concerned about potential bank failures. Bret believes that more bank failures are coming, and that there is little that the Federal Reserve, or anyone else, can do about it.
With the economy chugging along, and stocks at all-time highs, it's easy to become complacent. It's easy to forget that last year, five banks failed, including Silicon Valley Bank, Signature Bank, and First Republic Bank, which was taken over by JPMorgan Chase (JPM) .
In April of this year, Republic First Bank — not to be confused with First Republic Bank, mentioned above — also failed. This small, Philadelphia-area bank was taken over by Fulton Bank after Republic First became insolvent.
The failure of Republic First cost the Federal Deposit Insurance Corporation (FDIC) an estimated $667 million. The takeover by Fulton Bank was deemed to be the easiest, least-expensive solution.
You probably heard little about the Republic First Bank failure. I know about it because I live in their territory. I have friends and relatives who used to bank there. Fortunately, some were able to exit long before the bank's troubles became apparent.
How did they know First Republic Bank was in trouble? By looking at the stock's chart.
First Republic Bank (FRBK)
It was apparent by late last year that the bank was in trouble, as shares of (FRBK) fell from above $5 in April of 2022 to trade below a penny in December 2023.
Prior to Republic First’s collapse, there was no information that indicated that a bank failure was imminent. In fact, news articles pointed to an upcoming cash infusion by an investment group as recently as February of this year.
That cash infusion never came.
If the FDIC is standing by to cover losses, why should investors worry about keeping their money in a potentially insolvent bank? What is the downside to investors?
The FDIC insures accounts up to $250,000 per depositor, per insured bank. For some folks, this leads to managing accounts at multiple banks, in an effort to avoid keeping more than $250,000 in one bank.
Normally, when a bank failure occurs, FDIC insurance pays depositors in just a few days. Often, payment is received the next business day.
However, this is not an official FDIC policy. There is no promise or guarantee that payment will always be prompt. If a number of banks were to fail simultaneously, there could be costly delays in receiving insurance payments. This could lead to a loss of opportunity, such as the inability to purchase a house or start a business.
Bottom Line
Always check the chart before sending money to a financial institution. In this case, the warning signs were visible on the chart months before the general public became aware of Republic First’s troubles.
At the time of publication, Ponsi had no positions in any securities mentioned.