(By Sara Glakas) We trust banks to protect our hard-earned money. We expect that every dollar we put into our bank will be held safe until we come back for it.
But what if the bank doesn't deserve our trust?
In America, we have let our guard down when it comes to our banking relationships. We assume that everything will be fine if our bank fails. After all, the FDIC insures our deposits up to $250,000. Why worry?
I hate to break this to you, but the FDIC's Deposit Insurance Fund (DIF) -- aka, the money used to cover bank failures -- has been all but drained.
In 2007, the DIF had a healthy $52.4 billion. But since 2008 (after the housing meltdown), more than 413 banks have failed, and it's taken a devastating toll on the once-solid reserve fund.
According to the FDIC, the balance in the DIF is now just $11.8 billion -- almost 78% below where it was before the financial crisis. And though the fund will replenish slowly over time, the FDIC expects future bank failures from 2012 to 2016 to cost the fund $12 billion more.
I don't know about you, but I'm not willing to assume that the FDIC will always be there to cover my savings. Instead, I want to pick the safest bank in my area, so that I know the FDIC will never have to get involved.
So, to help Americans regain their sense of financial security and peace of mind that their money is safe, we've found a way to find the safest banks in America -- using a special metric called the "Texas Ratio."
It was developed by a financial wizard named Gerard Cassidy who used it to correctly predict bank failures in Texas during the 1980s recession, and again in New England in the recession of the early 1990s.
The Texas ratio is determined by analyzing a bank's non-performing assets and its loan-loss reserves. While the ratio has been excellent at predicting bank failures, it can also be used to find the banks that are the furthest from failure.
The math can get complicated, but here's what you need to know -- the closer the Texas ratio gets to zero, the lower the bank's risk of failure. Once the ratio gets above 1.0, things get a little shaky.
To illustrate, here's a list of the last 10 banks that were seized by FDIC. In every case, the Texas ratio is above 1.0.
And out of the five largest banks in the United States, none have a perfect score, but Chase and Citibank come closest to the mark.
Right now there are over 7,300 banks in the United States, but only 359 of them can boast a perfect Texas ratio of 0.0.
Click here to see the entire list.
-- Sara Glakas
Sara Glakas does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC owns shares of C in one or more if its "real money" portfolios.
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Author: Sara Glakas