Letter Re: With Bank Runs Looming, Check Your Bank’s Safety Rating!

Here is a link to “The Street”–a web site that offers ratings of banks throughout the USA. I checked out the banks in my state (California) and found that I currently bank with a “B” rated bank. However, there are a number of A rated banks that are in my town. It might make sense for each of us to know and check up on our financial institutions on a regular basis. This along with choosing the highest rated bank in your area could provide additional layers of insulation from the bank runs that I believe with be inevitable. Keep up the great work. – JSR

JWR Replies: Thanks for making that suggestion. One similar resource that I’ve recommended to my consulting clients for many years is The Weiss Bank Blacklist, published by veteran financial analyst Marty Weiss. It provides greater detail on individual banks and S&Ls.

While we are discussing bank safety, I should mention this: A SurvivalBlog reader on the West Coast mentioned an odd new development in an e-mail. He said, “I recently was told by my international bank (with whom I’ve done business with for several years) that they wanted me to indemnify them for depositing a US [chartered bank’s] cashier’s check. The only reason I can think of for this is that international banks are worried that US banks will collapse and they don’t want to be held responsible for any money that is in transit when this happens. I found this very disconcerting.”

Meanwhile, the headlines are trumpeting: New recession worry: Bank failures. The bottom line is that the risk of bank runs in the US has been substantially elevated in recent months. So be ready, folks! Here are my specific recommendations for readers in the US:

1.) Keep plenty of greenback cash on hand. Keep the equivalent of two month’s pay, if possible. (Expect online banking and ATMs to be shut down, en masse.) Find a well-hidden place for the cash at home. (Odds are that you won’t have access to you safe deposit box, unless it is at a private bank vault company.)

2.) Keep close track of any automatic debits from your bank accounts–(“automatic bill paying”)–so that you can revert to paying via checks or money orders.

3.) Do your banking with at least two separate institutions. BTW, make sure one isn’t the subsidiary of another! (Not only might they both be closed, but conceivably this might cap your FDIC insurance coverage–as if it was just one bank.)

4.) Absolutely do not exceed the $100,000 FDIC insurance limit. ($200,000 for married couples.)

5.) Research your banks’ safety rating. Then make changes, as needed.

6.) If possible, stop direct deposit of your paychecks or annuity payments.

7.) Remind your local coin dealer that bank runs are looking more likely, and recommend that they increase the amount of greenback cash that they keep on hand, including low grade numismatic paper money (such old series $2 bills and the now defunct US silver certificates.) That way you might have a better chance of liquidating some of your precious metals following major bank runs and/or a Federally-decreed “bank holiday.”

If and when bank runs do begin, preserve your cash on hand by making as many purchases/payments as possible with debit cards, checks, and credit cards. (Although odds are that debit cards will be entirely useless, and many stores will refuse checks and credit cards.) Because the paper trail on checks might get muddied in a protracted banking crisis, you’ll need to be able to prove that you made some crucial payments. Keep scrupulous records of your payments, especially for your mortgage, property tax, and insurance. Keep every money order carbon copy, and make photocopies of your checks before mailing in payments. (Or at least order a box of blank check pads that make carbon copies.)

In the event of a “bank holiday”, if you sell any items, insist on payment in cash, precious metals, Liberty Bell (“Forever”) stamps, or Postal Service money orders. Anything else might be hard to negotiate.

If there is a major banking crisis, there will be some unprepared friends, neighbors and relatives that are hurting badly. (Most families have less than one week worth of food on hand at home. Meanwhile, debit cards have become so ubiquitous that few families keep more than $150 in cash at home, on average.) Be charitable.