Are you banking at an institution that is danger of failing? How do you determine if your bank is in jeapordy and might be closed by the FDIC or another regulator? Most banks today do not fail in the traditional sense, instead they are seized by the FDIC or another bank regulator as their financial ratios deteriorate. At BestCashCow, we list several pieces of financial information for every FDIC insured institution. This includes the Texas Ratio of a bank, its Return on Equity and its Capitalization. To determine whether these can be predictive, we analyzed the Texas Ratios and the Return on Equity of the last ten bank failures. The chart below shows what we found:

As you can see, closed banks had several things in common:

• Texas ratios above 150%. A bank is considered to be under stress if its Texas Ratio exceeds 100%. The Texas ratios measures the capital and reserves a bank has to cover bad loans. A Texas Ratio above 100% means that the bank no long has enough to cover potential losses.
• Negative Return on Equity. Return on Equity measures the amount of income generated by the bank's equity. A negative return on equity is a sign that the bank is no longer profitable.

Of the last ten bank closures, every bank had a Texas Ratio greater than 150% and a negative Return on Equity.

Just because a bank's financials fit this state, does not necessarily mean it will close, but it is a strong warning sign. Be wary. FDIC insured banks provide some protection from bank failure ($250,000 per individual per bank) but there are other negative repurcussions. These include:

• A depositor may lose some or all of the money above FDIC limits if a bank fails.
• Any CD or CD IRA which a consumer holds in a failed bank may be reset once the bank’s assets are transferred to another bank or cashed out by the FDIC. For example, a depositor who holds a 5-year CD paying 6% APY from 2007 might find the CD called, resulting in lost interest.
• Failing banks may not have the time and money needed to provide top-notch customer service and support. They are fighting for their survival.
• The cost of bank failures is ultimately borne by the consumer. Money spent by the FDIC to insure bank deposits comes from a fee levied on all banks. The fee that a bank pays, is passed through to the consumer in the form of higher account fees, bank charges, and interest rates on loans. Ultimately, if the bank failure is big enough or systemic enough, the general public must come up with the funds to bail out the banks, as with the TARP and the S&L bailout in the 1980s.

It's worth it to spend a minute taking a look at your bank and understanding its financial condition.

• Find your bank

After the news broke that Bank of America and other big banks were planning on charging monthly fees for customers to use their debit cards, a national public outcry ensued. Petitions against the debit card fee were signed by hundreds of thousands of people online, The Guardian reports. BofA did back down from implementing the fee, which is great news for loyal Bank of America customers. Even though many customers are still upset over the bank’s previous intentions, how many of those people will actually switch banks? The result may surprise you. According to a study of BBC Watchdog viewers, people in Briton are more likely to get divorced than switch banks, even when they are highly dissatisfied with their bank’s service.

People in the British study claim they view the process of switching banks to be “a pointless and time consuming exercise,” which clearly expresses exasperation with the banking industry as a whole. While many Americans likely echo those sentiments, others are attempting to rally the masses in order to get people to switch to credit unions with more (perceived) reasonable terms, even going as far as to promote a national “Bank Transfer Day,” The Huffington Post reports. “Bank Transfer Day,” designated as November 5, 2011, encourages everyone to go out and switch their big-bank accounts to a local credit union account. While that may be good advice for some people, that advice won’t benefit everyone.

Here’s why: Just like the same prescription medication and clothing wardrobe won’t work for everyone, the same bank (or type of bank) won’t benefit everyone either. Credit unions are a wonderful type of financial institution, and they (on average) have lower interest rates on loans and higher rates on deposit accounts. But credit unions aren’t a panacea; they aren’t the remedy for all of the banking industry woes and they aren’t the best option for every consumer. Many people (especially those who travel a lot) may be better off with a big-name national bank like Bank of America so that they can be assured no matter where they go in the country, they can find a branch (and an ATM) if needed. Other people may find that a local credit union works great for them, depending upon their banking and lifestyle habits.

People shouldn’t stay with their bank no matter what (especially if they would divorce their bank had it been a spouse), nor should they blindly deposit all of their money in a local credit union just because it’s not a “big bank.” While it is important to be cautious about rising bank fees, it’s also important to consider your individual needs and choose a bank that benefits you best.

For the best information on banks, click here.

The WSJ is reporting today that Bank of America has pulled the plug on its planned $5 monthly debit card fee. It's no real surprise considering the negative press and the online uproar. Online sites, social networks, and message forums have been full of customer complaints about the fee as well as customer threats to close accounts and leave the bank because of it. This, and the fact that competitors such as Chase and Citibank decided not to levy a fee, forced Bank of America's hand.

I suspect the bank made the decision based on two factors:

• Being the lone major bank with the fee would put it at a competitive disadvantage in claiming its fair share of checking accounts. Not only did the other major banks back away from a fee, but startups such as PerkStreet Financial (a financial company that offers a debit card with no fee and 2% cash back) and smaller banks and credit unions were capitalizing on the news.
• The negative public sentiment was more than the battered bank wanted to deal with. Since the financial crisis and the purchase of Countrywide, Bank of America has been contending with a string of bad news related to losses, government assistance, subprime loans, mortgage modifications, and more.

The fee came in response to the Durbin Amedment, which lowered the amount banks could charge merchants when a customer uses a debit card. The Amendment is estimated to cost banks billions of dollars per year in lost revenue.

As banks try and recoup this revenue, look for more account and service fees.