Is Your Bank Failing? 8 Warning Signs

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When a financial system that you’ve put your trust and life savings in suddenly closes, you may start to doubt the banking system as a whole. With the recent collapses of Silicon Valley Bank and Signature Bank, the delicate ecosystem most Americans rely on is starting to feel shaky. This is not to say everyone should go on a bank run but it may be a good idea to familiarize yourself with early warning signs of your bank failing. 

8 Warning Signs of Bank Failure

It’s time to check your bank’s balance sheets as some of them may not be as flush as you would suspect. The foundation of the banking system relies heavily on the Federal Reserve. The Federal Deposit Insurance Corporation also insures deposits. However, even with these securities in place, some of the largest bank failures have occurred in the not-so-distant past.

Though the list of failed banks is long, it is important to note that your money is likely safe in the current bank you frequent. That being said, if you are starting to feel like your bank may be in trouble, here are some telltale signs of bank failure:

1. Multiple branch closures
2. Drop in deposits or limits on deposit insurance
3. Hard to find financial reporting
4. Declining financial ratios
5. Changes or cuts to provided services
6. Heavy layoffs throughout the financial institution
7. Rising interest rates or fees
8. Deteriorating customer service

1. Multiple Branch Closures

It’s never a good sign when large bank chains or even smaller regional ones start shuttering doors. With the rise of electronic banking or mobile banking, it is not unusual for banks, credit unions or other financial institutions to close a few branches here and there. However, a sudden spree of closures doesn’t indicate a long-term strategy. 

 2. A Drop in Deposits or Limits on Deposit Insurance 

The FDIC tracks the amount of deposits a bank has each year. If you notice a sudden drop in the amount of deposits they receive within a year compared to prior years this may mean many accounts are closing. This would not be a good sign. 

The FDIC also insures most accounts up to their full value within a cap of $250,000. If your bank closes, even though you’ll get recouped, it could take weeks or longer to see any money and your accounts will be frozen. This is why it is a good idea to diversify your bank accounts and always make sure you don’t invest in uninsured deposits.

3. Hard To Find Financial Reporting 

Financial reporting is always a matter of public record and it is released regularly. When it is announced there will be a delay in financial reporting, it is a huge red flag. It may mean the bank is trying to figure out if it can keep operating while navigating its liquidity while creditors are making demands. While the bank struggles with these deteriorating valuations, you may want to move your account to be safe. 

4. Declining Financial Ratios 

You can get detailed information about your bank from a few trustworthy sources. Two to know are:

• Uniform Bank Performance Reports
• Federal Financial Institutions Examination Council

This information will be complex but it will show you how your bank is performing compared to other financial institutions. It will also show you if its capital ratios are crumbling. 

5. Changes or Cuts To Provided Services 

If your bank all of a sudden stops offering the free checking account it always has or does away with special rates for long-term customers, this could be a sign of bank failure.

Building relationships with its customer base is important to a bank’s reputation and longevity. When it starts taking away loyalty incentives, there may be a bigger reason than just cutting corners. 

6. Heavy Layoffs 

Much like branch closures, if large chunks of staff and management are being let go from your bank, it is often a sign they cannot afford to keep them on. Even if this isn’t necessarily a sign of bank failure, it will still cost you in customer service. This magnitude of layoffs brings a whole new meaning to fire sales. 

7. Rising Interest Rates or Fees 

It is said you should put your own oxygen mask on before assisting others on a plane. This is a good metaphor for when your bank starts drastically hiking maintenance fees or rising interest rates on loans. This could indicate they do not have enough liquid assets to cover their obligations to creditors or deposits, and the consequences can be challenging for individuals and small businesses.

8. Deteriorating Customer Service

When branches close and large chunks of staff are laid off, there is no way around the hit customer service will take.

Even if you haven’t been made aware of such happenings, if you can’t get customer service online or on the phone after many attempts, this is a bad sign. At that point, it means there is no one to help you with your account. There might even be too many people trying to close their accounts. Either way, it could point to your bank failing. 

Final Take To GO 

Bank failures don’t just happen out of the blue and there are many fail safes in place to keep this event from happening. However, no bank is impervious to closing, especially if they have a history of making bad decisions over an extended period of time. Knowing the warning signs of when a bank is failing or becoming insolvent can not only save you heartache but also makes sure your money stays safe. 

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