Protecting Your Business Bank Account

(from your bank during a recession)

By Benjamin Gisin
Business consultant and former banker

Many businesses have bank accounts whose balances exceed the standard $250,000 FDIC insurance limit either occasionally or at all times. A business bank account may be a lot of things, but money in the bank is not one of them. A business account (or any other bank account) is merely an accounting of your claim to what your bank owes you. The nation and world run not on money, but promises to supply money the bank does not have, popularly called bank credit. Bank credit is simply what banks owe depositors. When you write a check, what your bank owes you is transferred to what another bank owes the person you wrote the check to.

When debts owed to banks default, banks can quickly default on what they owe depositors. Every quarter banks send reports of their financial health to the FDIC. Based upon a formula of minimum reserves, capital and profitability, the FDIC (or state banking regulator) then decides when to close a bank.

Thanks to efforts of the FDIC, at year end 2008, the Transaction Account Guaranty Program (TAGP) was approved and implemented. The program essentially provides unlimited FDIC insurance on non-interest bearing transaction accounts, the most popular being checking accounts.

Unlike historical FDIC insurance, the TAGP program is optional for banks and banks may opt out. Over one fourth of all banks (2,076 banks) of the nation’s 7,830 banks (as of 6/30/10) have opted out of the TAGP program. This means that if your business account is at one of these banks that then fails, you are potentially at risk to loss.

With the wholesale closure of banks over the last 3 years, the FDIC has fine-tuned its closure process. As a matter or course, the FDIC and state banking regulators work hard to find another bank to assume the deposits (liabilities) of the failing bank. In most cases, bank account holders, regardless of the size of the bank account, simply get a notice that their deposit account has been assumed by another bank. However, in those cases where no other bank wants to assume the deposits of a failing bank, the FDIC will close the bank and send out checks for bank account balances up to the $250,000 limit. If your business account is at a failing bank that no one wants to buy and has no TAGP coverage, balances over $250,000 are lost.

The FDIC’s TAGP program may well be the most important service that determines where you have your business account. Regardless of rumblings that the economy is improving, the banking system is a long way from being out of the woods when it comes to non-performing loans and loan losses – the primary cause of bank failures. For perspective, following are the losses banks have taken in recent years, with 2005 being a benchmark for what a more normal year might be:

2005 banking loan losses: $ 31.6 billion

2008 banking loan losses: $100.4 billion
2009 banking loan losses: $187.5 billion
2010 banking loan losses $100.7 billion (for first six months only)

The message in these numbers is that bank loan losses for the first six months of 2010 are the highest ever in U.S. banking history.

Banks are required to post in their lobbies clear signs if they have opted out of the TAGP program. The next time you go to your bank, look for the signs and talk to your banker.

The TAGP program will expire at year-end 2010 and will be replaced by another program of unlimited transaction account guarantees that will run for two years, expiring 12/31/2012 under the provisions of the Frank-Dodd Act. The law does not allow banks to opt out of this program. Hence, the risk from now till 12/31/2010 is real for businesses that have their bank accounts at institutions who have opted out of the TAGP program.

The activities of the FDIC, in preserving depositors’ claims to what their banks owe them, has been the bedrock that has prevented the nation from falling into absolute chaos during this financial crisis, as was the case in the Great Depression of the 30s. ■

Benjamin Gisin consults business and agricultural enterprises facing challenges in their banking and credit relationships. He can be reached at benjamin@ida.net or calling (208) 681-2717.

Don't Give Up...Look what can happen!

"Mickey Mouse popped out of my mind onto a drawing pad... when the business fortunes of my brother Roy and myself were at their lowest ebb and disaster seemed right around the corner."
-- Walt Disney, producer

The Seven Methods of Time Power

By Brian Tracy

There are seven methods that you can use to help develop the habits of time management. The more you think about and practice these methods, the more rapidly you will program yourself to be efficient and highly productive.

First
Remember that your self-image determines your performance. You always perform on the outside in a matter consistent with the picture you have of yourself on the inside.

Practice visualizing and imagining yourself as you want to be, not as you may have been in the past. You can actually change your self-image permanently by repeatedly visualizing yourself as someone who is highly efficient and effective.

Second
Remember that it takes about twenty-one days of practice and repetition to form a new habit pattern. It has taken you your entire lifetime to become the person you are today, with the time management habits you have at this moment. It takes time and commitment to change, and for your subconscious mind to accept the new habits.

Third
Promise yourself that you are going to become excellent at time management. Promise yourself that you are going to be punctual, and that you are going to concentrate on your most important tasks. Then, promise others that you are going to be more effective and efficient in the future.

Fourth
In developing the habits of time management, start in just one area where poor time management is holding you back. Don't try to change everything at once. Change just one habit or activity where you know that improvement could be very helpful to you.

Fifth
Launch your new time management habit strongly. Never allow an exception once you have decided that you are going to become excellent in a particular behavior. Never let yourself off the hook.

Sixth
Use the “trial and success” method rather than the “trial and error” method. The trial and success method requires that you learn how to succeed by failing, and then by learning from your mistakes. Analyze your reasons for poor time management. Ask yourself, “What are the obstacles to my operating more efficiently in this area?” Take some time to reflect on recent behaviors.

Seventh
You must absolutely believe that you can and will become excellent at time management. The Law of Belief says that “Your beliefs become your realities.” The more intensely you believe that you can and will become excellent at time management, the more rapidly this belief becomes your reality. If you hold to your belief long enough and hard enough, it will eventually materialize as new behaviors with regard to time.

Action Exercise
Select one area where better time management skills can help you to be more efficient and get more done. Resolve to go to work on yourself in that area immediately.