Protecting Your Money

October 5th, 2008

In these turbulent financial times “protecting your money” is critical.  I think that one of the keys to protecting your money is having relationships with solid financial partners. How do you do this? Solid financial partners (banks) should possess the following attributes:

  • A solid balance sheet with adequate capital
  • A risk management program that is prudent
  • Have integrity and transparency
  • Maintain diversified streams of revenue
  • Have a history of solid credit quality

Some people may not understand how to make sense of these interpretations and be comfortable evaluating balance sheets, but it isn’t that tough. In these times it is critical to learn these skills. Evaluate your bank and then compare them to other banks in your community.

I look for breath and width in a bank so if things get tough your credit lines will still be available and your funds safe. Smaller regional banks in many instances can be solid but why take a chance when stronger institutions are available.

Banks have plenty of data available and it is prudent for people to ask them for balance sheets and industry leading performance metrics. Then go make comparisons. Take a look at the following metrics:

  • Return on Average Assets
  • Return on Common Equity
  • Efficiency Ratio
  • Net Interest Margin

Making these comparisons will provide clearer guidance on the safety of their money. All banks should be able to provide the above information and if they can’t or unwilling it might be a good indicator about where to put your money. This extra effort will help you make better choices on where to bank and allow you to sleep at night.