First quarter 2011 financial data from the FDIC has been released and we've gone through and crunched the numbers to give you an idea of what is happening to the U.S. banking system. We'll do a credit union update shortly. You can now also view updated financial information for every bank and credit union in the United States when you click on any bank profile on BestCashCow. Here's an example for the biggest bank by assets in our database, JP Morgan Chase Bank .

Why Is This Important?

Every bank on BestCashCow is FDIC insured and almost every credit union is NCUA insured. So why is it important to understand the overall state of the banking sytem?

• It gives you clues about what is going to happen to rates and loan availability in the future.
• Since banks led the country into the great recession, their financial condition provides clues to how the economy is recovering (or not recovering).
• Bank failures can impact you even if your deposits are covered by FDIC insurance. See the bottom of this article for more on how this happens.

Bank Texas Ratio

The Texas Ratio measures the amount of non-performing loans and repossessed property a bank holds versus the capital and loan loss reserves set aside to cover losses. If the Texas Ratio gets above 100%, then the bank, or banking system may not have enough capital or reserves to cover future losses. The lower the Texas Ratio the better. Analysis of failed banks show that most have Texas Ratios over 200%.

The overall Texas Ratio for U.S. banks spiked between 2007 and 2009 but is now slowly coming down. As the chart shows though, the ratio is far from its 2007, pre-crisis low of 9%. The banks are not out of the woods yet.

Looking at the Texas Ratio regionally shows that not all states are created equal. Rhode Island continues to maintain the lowest Texas Ratio at 9.38% while Georgia has the highest ratio at 71.31%. Like our State Texas Ratio analysis last quarter , the New England states continue to have the "safest" banks in the country according to the Texas Ratio.

Q1 2011 State Texas Ratios

Deposits at banks have grown since 2008, from $8,082,229,710 to $8,674,568,188 while loans have decreased from $6,681,788,739 to $6,279,076,894. So, banks are pulling back on lending while stockpiling deposits. As a result, banks feel very little need to compete for deposit dollars and feel little pressure to keep up rates. They are awash in cash!

Everyone knows rates have come down but for the last couple of years banks have been able to make more money off this decrease in rates. The rates they pay on deposits have come down faster than what they pay on loans. That makes sense because banks have lots of longer-term loans locked in at higher rates (think 30 year mortgages, etc.) while the longest standard deposit is a 5 year CD. The difference between what they pay on deposits and what they earn on loans is called the Net Interest Margin (NIM). The chart below shows NIM spiked after the financial crisis as the Fed brought down the Fed Funds rate and the cost of bank deposits dropped. Notice though, how it has leveled off. There are two reasons for this:

1. Deposit rates cannot drop much further.
2. Higher interest loans and leases held by banks are rolling off or being refinanced.

Look for NIM to continue to decline if the interest rate environment does not change. Also, look for banks to work hard to lock consumers into 5 year CDs (or even longer maturities) at the currently super-low rates. If the economy does not improve banks will not feel the same urgency but they will face margin pressure as NIM continues to come down.

So, banks have made good money from a favourable interest rate environment. That has helped them reduce or cover the bad loans on their books. An improving economy has also helped. Non-current loans and charge-offs peaked in 2009 and have been coming down. If the economy continues to improve look for this trend to continue. This will help bank profitability since they will not need to set aside as much cash to cover bad loans. It will also help banks on the edge from going over and failing.

The data suggests that the worst is over for the banking system and it is slowly healing. The mending has come at a huge cost to consumers though. Not only have we had to bail out the banks with infusions of capital (TARP), but in essence we have been subsidizing the banks via extremely low interest rates (remember the NIM data). Banks are sitting on a pile of cash and eventually this will enter the economy. Rising rates may actually spur greater bank lending as banks may be waiting to lend money when the can make more. Indeed, Wells Fargo hinted at this in a conference call with analysts, saying they wanted to "keep their powder dry."

It may be obvious, but if the economy continues to improve look for rates to rise, and for loans to credit worthy borrowers to suddenly become much more available.

If there is other data you would like to see if in future updates, leave a comment below. I welcome any comments and thoughts.

If there's anything the Great Recession has taught us, it's that fiscal responsibility needs to be learned early and needs to be learned well. Perhaps one of the best ways to teach your children fiscal responsibility is by giving them hands-on practice under a parent’s watchful eye. Many banks offer youth accounts, and it can be fun for your child to see their savings grow. You can even make a game out of how much interest their account will earn over a certain time period, and USAA has some great Youth Banking accounts to consider. While you have to be affiliated with the military to take advantage of USAA’s insurance products, their bank and investment products are available to the general public.

If your child is very young, you may want to start with only a Youth Savings account. You can open up an account for as little as $25, and there are no monthly fees and no minimum balance requirements. They can use any ATM in the country for free up to the first 10 transactions (up to $15 for other banks’ fees will be refunded each month). The account earns a tiered interest rate based on the amount of the deposit. You and your child can deposit checks with just a home computer and a scanner using USAA Deposit Home, and can access their account online or via mobile banking. However, perhaps the best benefit of this account is the parental controls. As a joint account holder, the parent will have full access to the child’s account, but the child can manage their own account with parent’s permission. The parent can also electronically transfer money from their account to their child’s as well.

If you want to help your child get used to debit and credit cards, you may want to check out the USAA Prepaid MasterCard as an alternative way to give your child his or her allowance. There is no set-up fee or annual fee for this card; you can set spending limits and allowance schedules, and view and track transactions online. You can also add more money instantly, 24 hours a day, 7 days a week. When your child goes to a merchant, they will have the option of pressing “credit” and signing the receipt or pressing “debit” and entering a PIN.

The Teen Checking account comes with all of the benefits of the savings account and the Prepaid MasterCard, except they will also receive a free rewards debit card to earn cash back or points for things like IPods and DVD players. As a parent, you will still have full control over their account, but if you give them permission, they can manage their own account as well. By the time they’re ready to get their own individual accounts and cards, they’ll be experts.

If you are like many Americans, you have a large amount of student loans looming over your head like a black cloud. Student debt is not something that is uncommon in today’s world, but can it keep you from owning a home?

In order to understand the type of effect your student loan will have on your ability to get a mortgage, it is important to know the two basic types of debt that a mortgage lender looks at. The first type of debt is an installment loan. An installment loan is a debt that you must pay a fixed amount every month. Your student debt is considered an installment loan just like auto loans, mortgages, etc.

Installment loans, specifically student loans, have an impact on your lender’s decision on granting you a mortgage. While the impact of large installment loans can be adverse, it is unlikely to be as detrimental as large amounts of revolving credit (which ordinarily come from credit cards). In other words, student loan debt is more favorable than credit card debt so having a large amount of student loans is not going to look as bad on your credit score as having a couple maxed out credit cards.

However, if you have student loans and you do not take them seriously, you could adversely affect your credit a great deal. Many students use their student debt to begin building their credit history. If you default on your student loans, your credit score will be greatly affected. That is why it is so important to make payments on your student loans on time every month to avoid those dings on your credit history.

If you are planning on applying for a mortgage in the near future, it is important to start paying down your student loans. But it is more important to pay down your other debts as well. The federal government allows many forms of aid to help you repay your student loans. For instance, the normal repayment program allows you up to 25 years to pay off the loan in small monthly installments. There is a consolidation option which allows a borrower to combine several student loans into one easy to manage payment each month. This often results in a lower monthly payment and longer repayment terms. You can also choose to defer your loan payments for several years if you have a financial hardship.

With all of these options available to help you repay your student loans, defaulting on your payments is the worst option to take if you ever plan on having a mortgage. Keep your student loan payments up to date and they won’t have the horrible impact on your credit history that you may have originally thought.