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Q&A in the wake of Lehman Brothers, Merrill Lynch, AIG


How Do Recent Failures, Mergers and Takeovers Affect Me?

We've just returned from our Annual Washington Visit and while we were there Lehman Brothers went into bankruptcy, Merrill-Lynch was acquired by Bank of America, and AIG received an $85 Billion bridge loan from the federal government. With news commentators continuing to confuse Wall Street investment banks with main street community banks, you're likely to get some questions from your customers. Here are some talking points for you to consider. (Thanks to the American Bankers Association for their assistance in putting these questions together). 

Q.  Many bank customers are once again asking whether their money is safe. 
A. The answer is the same: ”Nothing's Safer Than Money In The Bank!” As long as you're within the FDIC insured limits, there's nothing to worry about. In its 75 years of existence, no one has ever lost a dime in an FDIC-insured account.
Q.  How will the recent failure of Lehman Bros. affect me?
A.  it won't, unless you invested money with Lehman.  First of all, Lehman Brothers is not a “bank” in the sense most people think about banks. Lehman, Merrill-Lynch, Bear Stearns, Goldman-Sachs, and other huge Wall Street firms are investment banks. Their business is one of fund-raising, i.e., they exist to facilitate the sale of stocks and bonds, and they operate as advisors and agents for companies who want to raise capital in those global capital markets. 
Banks and thrifts operate at the retail, main-street level by taking in deposits and making loans to Oklahomans and Oklahoma businesses. They are well-capitalized, and that capital is like a rainy-day fund in case borrowers for some reason don't repay their loans. Incidentally, those deposits are insured by the FDIC up to $100,000 for regular deposit accounts, and $250,000 for retirement accounts. 
Q.  Should I be worried about the health of my bank?
A.  Not really. If you are a depositor, it doesn't matter whether your bank is healthy or not healthy. The insurance coverage remains the same.   And size doesn't matter either. From the Bank of Oklahoma (our state's largest bank, one that's exceptionally strong) to the First National Bank of Nash (one of the state's smallest banks and one that's equally well-capitalized) your funds are safe and protected by FDIC insurance. 
98 percent of nation's 8,500 banks considered "well capitalized" – the highest designation possible – so the possibility that your bank will be taken over by the FDIC is extremely remote.  Even if it did happen, you would continue to have uninterrupted access to your FDIC insured deposits.
Q.  What about all the experts on television and the lists that predict the next bank failures?
A.  The only list that matters is the one from the FDIC, which has a more thorough and complete picture of a bank's safety and soundness.  It's important that this list be kept confidential, because, on average, the vast majority (87 percent) of banks on this list come back to healthy status. 
Q.  Will I still be able to get a mortgage, credit card or other loan?
A.  People with a good credit history will continue to have access to mortgage, credit card and other types of loans.  Appropriately, most banks are taking steps to limit risk in the current economic environment, so they have tightened lending standards.  That's why it's more important than ever to monitor your credit report and keep your credit score in the "good" to "excellent" range. 
Q.   How does the recent takeover of Fannie and Freddie affect bank customers?
A:   If you already have a mortgage, nothing will change.  If you are thinking of buying a home or refinancing a mortgage, the government takeover will help stabilize rates.  With explicit government backing, Fannie and Freddie can continue to buy mortgages, hold them in portfolio or sell them into a functioning mortgage market.  Mortgage rates nationally have already come down, making it easier for homebuyers to qualify and for homeowners to refinance high-priced loans.


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