FDIC Closes Netbank, One of the First Online Banks

An anonymous reader writes "NetBank, one of the first internet banks in the country was closed by the FDIC on Friday. Being a loyal customer for 8 years, I am saddened that an institution that provided me with so much great service and a cool, hi tech way to conduct my financial transactions is shutting down. Seems that mortgage defaults are to blame: 'NetBank's closure marks the first bank to close since the recent U.S. housing boom deflated. Critics have said that weak underwriting standards have led to record number of homeowners entering the foreclosure process. But NetBank's rare Internet-based business strategy made it a unique financial institution and its problems aren't expected to mirror issues facing other mortgage lenders, analysts say.'"

Fridays are going to become interesting

[talledega500]

The US news services, the govt and the market collude to deliver bad news on fridays
when we citizens faithfully spend our evening at the pub and dont read the news.

I bet if you really wanted to find out whats really going on in the markets you
could simply aggregate all of the Friday financial news.

Will anyone be talking about netbank on Monday. Unlikely.
But here's the creep.

2.5 billion dollars is a small bank but not a community bank.
If you had money to bet on it given how scared the bond market is over this,
do you think theres a bank with oh say 100 billion thats going to fail
in say the next year or so.

You can bet your bottom dollar on it. Oh wait you already did.
You shouldve kept it under the mattress.

It would seem so

[Sycraft-fu]

ING Group is pretty major, I don't think they are going under any time soon (ING Direct is one of their divisions). However if it does, you needn't worry as mentioned this is what FIDC insurance is for. Up to $100,000 of your deposit is covered by the FDIC. So unless you've got more than that in there, you are fine. If you do have more, may I suggest you seek the services of a financial consultant, as that is too much money to just leave sit in a bank account, even one with a reasonable interest rate.

Re:FDIC insurance

[Rich0]

It largely depends. Many banks have "money market" accounts that are classified as savings accounts as far as the FDIC is concerned and are insured. Many money market accounts are in fact uninsured as well.

Netbank had a "money market" account which was FDIC insured - at least as far as I'm aware (and I did take the time to find out).

I'm guessing it comes down to whether the bank wanted to follow FDIC rules regarding investments/limits/reserves/etc. Most money market mutual funds don't - but they're still very safe due to their investment profile. Also - most non-FDIC-insured money market funds tend to be privately insured against anything but investment risk.

Bottom line is - anybody with any kind of account no matter what it is called or where it is held should be aware of its FDIC-insurance status. Many banks have both insured and non-insured investment products.

Re:ING acquires deposits

[tburkhol]

I hope [ING's] lending requirements are a little more solid (I hold an Electric Orange account there).

ING only bought the deposit accounts. Most of NetBank's mortgages are going to Everbank, apparently with the bad one staying with FDIC until they can find a sucker^wbuyer. In any event, deposits at NetBank are insured, so few account holders will lose money (the exceptions being about 1500 people who had more than $100,000 on deposit.

The FDIC has a whole list of failed banks [fdic.gov]. Apparently, it happens with some regularity, and it seems to be mostly a non-event for bank customers. Sucks for employees and shareholders, but that's business.

Alternatives

[supertall]

I've enjoyed using Netbank for several years now, and as someone who moves around a lot having a branchless bank equally accessible from anywhere in the country has been nice. They even have (had) ATMs here in B.F. Mississippi. I'm sad to see them go.

Are there similar alternatives to Netbank that anyone would recommend?

I went with USAA.

[Kadin2048]

For reasons that had nothing to do with any intuition of an impending collapse (I was actually most annoyed that they didn't play nicely with Mac Quicken), I moved all my deposits from NetBank to USAA a few months ago. I've been very happy with USAA; they offer more online features and a better website UI than NetBank did, excellent customer service, and ATM-fee reimbursement (up to $10/mo or so). Their interest rates on checking aren't quite as high, but that's a small price to pay, particularly since it serves as encouragement to not build up a big balance in checking, but instead keep savings in a savings account and investments in investment accounts. USAA also doesn't gouge you if you want paper statements, although they give you the option to disable them and get everything online if you want.

In retrospect, now I know why the people at NetBank didn't seem too surprised when I closed my account down and moved everything out. At the time I was a little surprised that they didn't try to keep me as a customer at all, particularly since I'd been with them since the very beginning.

When NetBank first started, they were really a joy to work with. Their website was first-rate, their customer service was awesome (I recall calling them up in the middle of the night once and getting an actual human operator, not a "push x for foo" prompt tree), and they had a lot of nice little extras. Initially, they even sent out paper account statements on color, 3-hole-punched letterhead.

The nice paper for the statements went away in the first round of cost cutting, as did the human operator on the phone. The second round was charging $3/mo. for paper statements at all, and charging for checks. Then the website stopped getting any updates. And the last straw for me was when they did something funny to the backend system, and I started having to click "download transactions" twice in Mac Quicken in order to get it to download (the first try would *always* fail). After a few years of that, I got fed up and decided to leave.

In hindsight, I guess my timing was pretty good.

Re:That's irrelevant.

[(negative video)]

Inflation is low, Unemployment is low, GDP growth is ok.

Inflation has been roaring during the past decade, but masked by cheap imports and temporary absorption of the money used to pay for those cheap goods.

True unemployment is sky high, around 50% by historical metrics. The government unemployment numbers were redefined to ignore people are barred by law from employment and people who are unable to find employment. The government has also ratcheted up efforts to legally ban more people from employment.

GDP growth has likely been stagnant or recessionary, but masked by the enormous churn in the financial and construction industries.

How has the presence of massively cheaper goods and labor made us worse off?

Many Americans lack the IQ needed for intellectual jobs, but have more than enough willpower, dexterity, and social skills to be useful. When their jobs are shipped to foreign countries, they are reduced to a combination helpless dependency and pointless make-work. This is dangerously corrosive to the great strengths of American culture.

Regarding commerce Euroization: I hear this nightmare scenario all the time, and I don't see the problem with it. The US will lose a couple billion dollars in seniorage revenue, and it will be somewhat harder to finance debt. I actually see this as a positive move.

You are failing to consider eurodollars: US dollars lent out by foreign organizations at extremely high reserve ratios. It would not take much market panic** to cause a liquidity crunch. The Fed could not tide over the institutions that wrote eurodollar contracts because they are foreign, and the local central banks cannot help because the contracts are denominated in non-local currency. Rock, meet hard place. The high leverage also means the Fed doesn't have to work as hard to affect the money supply, making money supply operations less painful to Americans.

**I wonder how many eurodollars were spent on purchasing low-quality US mortgage-backed securities? Human folly being what it is, I'd expect rather more than is comfortable.

To whitewash these issues, the Fed decided to stop reporting M3 in November 2005. (M3 was the only money supply measure that included eurodollars.) They read the writing on the wall two years ago.