Risky Business – Are There Options for Safer Banking?
Recently I got a nerdy-looking pair of reading glasses and I decided to read a super nerdy report just to get, well, the full nerd experience. The report popped up in an email and it promised to reveal “how banks are doing post-economic crisis”*.
Of course, many of us still keep money in a bank and sometimes we worry about that. Part of being prepared for emergencies means keeping a finger on the pulse of industries that we used to assume were humming along just fine. However, the last few years have revealed we all need to be much more aware of what’s happening in the world around us. The recent economic crisis exposed major flaws in banking practices and those flaws ended up affecting every one of us, so none of us should stop being concerned.
We can’t assume that banks have learned their lessons and adopted more stable means of making a profit. You may or may not be surprised to learn that some banks are still going after high profits, regardless of risk. The good news is consumers who are awake can choose to put their money and investments with banks that have adopted a more conservative approach. We won’t tell you where to bank, and the report doesn’t name names, but here’s the gist of what the report said to look for if you’re looking for the safest banking option possible:
When banks want to make more money, they typically relax their loan standards. Relaxed standards attract customers who are not great candidates for loan payback and probably would not qualify at a more conservative bank. As we’ve seen, relaxed standards usually happen in a good economy because banks think the risk of loan default is low, and that’s part of what happened to the banking industry in 2009.
The riskiest banks, the banks that could be in danger of collapsing under the weight of their own debt in the future, are the banks that give out the most loans. If your bank is advertising how easy it is to get a loan there or they’re advertising loan programs for people with not such great credit, it’s likely they’re taking high risks and you might want to move your money somewhere else.
On the other hand, banks that don’t make all their money from loan interest are the least risky. These are usually smaller banks that have diversified services so they don’t have to depend on loan interest to stay afloat. Credit Unions, local banks and even bigger banks that aren’t advertising lots of easy, available cash may be good candidates for your business.
The analysis in this report showed that banks are still taking risks on a pretty big scale so as consumers, we need to stay aware. If a bank has relaxed loan standards in order to attract more customers and beat the competition, it could spell trouble for you. Watch your bank’s advertising, see how heavily they’re promoting easy loans or loans for people who are repairing credit.
The general wisdom is this: the harder it is for you to get a loan at your own bank, the safer your money is in a downturn.
*The report is called Which Banks Are More Risky? and it was published by Deutsche Bundesbank last year.