Wednesday, September 17, 2008

Avoiding a run on the bank

To clarify my post from Monday: I don't think the run-of-the-mill WaMu customer has anything to worry about, or should do anything in response to the bank's death spiral.

It seems fairly likely that WaMu will be acquired by another bank, rather than collapsing so thoroughly that it needs an FDIC takeover. Even if that worst-case-scenario came to pass, through, typical customers would barely notice.

When NetBank went bust in September, I never lost access to my money. I had a checking account at NetBank with a few hundred dollars in it. ATM access and debit-card use continued without any interruption; I could withdraw and spend money at all times. Checks I'd written both before and after the FSIC shutdown cleared just fine.

The only customer-facing service interruption was that the website went offline for two days, replaced by an FDIC shutdown notice. That notice specified the time period of the planned Web outage, and promised the site would be back up on Monday. You can see the notice in my post made at the time.

When a bank fails, the FDIC immediately posts a detailed FAQ for its customers. Here's Netbank's. Standard checking and savings accounts, like mine, have insurance up to $100,000; IRA funds have a separate, $250,000 insurance.

So, if WaMu went bust, anyone with less than $100,000 on deposit would be fully covered, and would almost certainly never lose access to their cash. The service interruptions, like the website going offline for two days, are blips, not catastrophes.

But WaMu insists it has the liquidity to stay in business (do they? we won't ever really know till it next reports earnings, crashes or gets bought), and reports keep coming in of behind-the-scenes scrambles to line up financing or a buyer.

This is annoying, because a new buyer usually brings new banking terms -- but again, not catastrophic. No one loses any cash. What I plan to do is wait and see who buys the bank, and what terms they plan to offer.

If I had more than $100,000 with WaMu, I think I'd move the uninsured cash out, just to be safe. But for anyone who has less, there's no reason to transfer any money and contribute to a potential run on the bank. Wait and see is the sanest, and easiest, approach.