More Money Blog

During the past few months financial and bank stocks have been taking a tremendous hit due to the credit crisis. As a result a number of smaller banks have gone completely under and taken over by the government (the FDIC).

An interesting trend that I have observed and heard about over the past few months is that the government seems as if it will do almost anything in its power to keep large financial intuitions (like big banks and mortgage companies) afloat, while allowing the smaller banks and financial companies to go bust. The US government recently brokered a deal to keep the giant investment bank Bear Stearns from going bankrupt and the new housing bill that just passed provides much needed support to mortgage giants Fannie Mae and Freddie Mac.

Within the past few months a number of smaller banks (Indy Mac, First Heritage Bank, First National Bank of Nevada, and First Priority Bank just to name a few…) have completely failed and seized by the FDIC with no special help.

So the US government is clearly going to great lengths to protect the large financial institutions. They seem to consider these large institutions as “too big to fail” and will do anything to save them. So the real question is…does the government consider your personal bank too big to fail? It’s hard to tell, but if you are banking with a nationwide bank that millions of Americans use, chances are the government won’t let it fail and become under control of the FDIC.

Another warning sight to watch out for is the current stock price of your bank. If your bank stock is trading under $5, then there is probably a bigger chance that it could fail than other banks with higher priced stocks. Use a website like MarketWatch.com to check the price of your bank stock.