What’s Better Than Having Insurance?

by Mark Johnson, ECCU Executive Vice President
(Originally published as a post within ECCU’s former e-publication, The Buzz.)

Insurance is a very good thing. Even comforting. Except when the first sign you see as you walk into a new doctor’s office says: “We Proudly Carry Malpractice Insurance!”

So, while having insurance—for our homes, cars, health, even our bank accounts—is prudent, there just might be something better. Wouldn’t you rather be the new patient whose physician has malpractice insurance but never uses it because that doctor’s knowledge, competence, and skill make it seem unnecessary?

When you pick up the morning paper these days, you see bank ads touting safety and security. How do you know those institutions are really safe and sound? While the recent increase in federal deposit insurance from $100,000 to at least $250,000 is a good thing, spending dollars to advertise the increase could strike some as similar to the physician advertising malpractice insurance.

So, what’s better than having deposit insurance? Not having to use it, of course! For depositors, there’s a real difference between being insured and being secure. Federal deposit insurance may protect your funds if a financial institution goes under, but who’d want the hassle of getting your money back? Having your funds in a well-managed, healthy financial institution offers the security and peace of mind that you won’t need to use the federal insurance.

How do you know a financial institution is safe and sound? Here are some indicators:

  • Best Practices—Does the institution engage in high-risk lending or investing? In recent days, the most obvious example would be subprime real estate lending and securitized investments in subprime loans. Overall, is the financial institution focused on its core mission, customer base, and competencies, or has it ventured into investment arenas where it has little experience or where the risk is too high or even unknown?

  • Capital Reserves—Is the institution’s net worth adequate to meet present and future needs? Do they fall within “well-capitalized” parameters established by their federal regulators (FDIC or NCUA)?

  • Profitability—Does the institution have cash left over when all their expenses have been paid? Being consistently profitable helps a bank withstand market volatility.

These are extraordinary times. Financial institutions that employ consistent, sound business practices to meet their customer’s needs will weather the current economic storm. Partnering with one of these institutions can afford the kind of security and peace of mind that’s even better than insurance.

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