The Federal Deposit Insurance Corporation was created after the Great Depression to prevent bank runs. FDIC insures your personal bank deposits up to $100,000 per titled account. In other words, if you have $100,000 in a savings account in your own name, Joe Schmoe, and another $100,000 in a CD in the name of the the Estate of Joe Schmoe, your money is insured for $200,000 because the accounts are different and they are titled differently.

In practice, most of us rarely worry or even think about this because 1) most of us don’t have $100,000 in all our deposit accounts combined, and 2) no one worries about bank runs anymore. At least, no one used to worry about bank runs until Bear Stearns, an investment bank, tanked literally overnight. Bear Stearns failed due to what was essentially a bank run: its investors wanted to cash out, immediately if not sooner, all of them at the same time. The day before Bear Stearns failed, Jim Kramer of TV’s popular Mad Money stock tips program, was confidently proclaiming to all his viewers that Bear Stearns was inviolate, that it would be around for eons, that it was solid as a rock.

Whatever, Jim. I guess you win some, you lose some.

People are forever spouting off about the stock market, and why not? It’s fun, it’s entertaining, it makes you look like less of a jerk (somewhat) than talking about Vegas all the time. It’s mostly guessing though. Some would go so far as to say that playing the stock market is gambling. Whatever you personally believe about it, while all the talk continues, you might be interested to know that F.D.I.C. is quietly hiring back retired employees and beefing up its staff in anticipation of as many as 300 US bank failures in the coming two years.

According to the F.D.I.C, at particularly great risk are large regional banks that were left holding lots of mortgage backed securities when the housing bubble burst and everyone scrambled to unload their questionable products. As the housing market continues to deteriorate, the next wave of credit defaults is already gathering on the financial horizon: the construction loans, helocs, home equity loans, traditional second mortgages, debt consolidation loans, boat loans, motorcycle loans, and even unsecured credit debt. This impending wave of defaults on non-mortgage debt will cause yet another liquidity freeze that will hit smaller banks hard. F.D.I.C. keeps a list of about 70 banks already in danger of failure, and watches them closely.

One common tactic used by distressed banks to raise capital when money is not forthcoming from other investing institutions is to offer attractive interest rates on deposit accounts such as certificates of deposit (savings accounts locked in for a predetermined period). IndyMac Bank, one of the regional institutions at the top of the F.D.I.C. watch list, has currently been promoting some very high-interest CDs, as has National City Bank, a large midwestern commercial bank heavily invested in subprime loans that does business in states with high foreclosure and unemployment rates. Both banks are on the F.D.I.C. distressed list.

If you have over $100,000 to invest and you are attracted by a great CD rate at a bank you are not overly familiar with, it isn’t a bad idea to do a little research on the health of the institution. Sure, your money is insured by F.D.I.C. up to $100,000, but if you put that much money into a bank that subsequently folds, do you really want to go through what it will take to get your money back? Wouldn’t it be easier just to keep your money in a reliable institution?

We don’t hear a lot about bank failure in the press, because people are already upset and nervous, and everyone knows you don’t want to yell “fire” in a crowded theater, not even if there is a fire. Panic only makes matter worse.  But I have always loved playing Cassandra, so I thought I’d put this out there.

Watch PFA for a future list of the top 10 healthiest banks in the US and how to find their best rates on CDs and other good, safe deposit accounts.

Until then learn a little Latin if you can:

Caveat Emptor!