Contracts Blog

The sub-prime mortgage problem just got worse…a LOT worse. Last month, ING Direct assumed the insured deposits of NetBank. For once, an institution that I have actually heard of. What are insured deposits? That’s the balance in your checking or savings account that is backed by the U.S. government. And, if your account balance exceeds the insurance limit, you become a creditor of the receivership, which is legalese for “you’re getting pennies on the dollar.” In NetBank’s case, it had approximately $109 million in 1,500 deposit accounts that exceeded the federal deposit insurance limit. Yikes! That’s an average of over $70,000 per account.

The Federal Deposit Insurance Corporation stated that “[n]o advance notice is given to the public when a financial institution is closed.” Presumably, that is to avoid a run on the bank which would exacerbate matters.

In hindsight, this shutdown did not come out of the blue. Prior to September 28, 2007, you could have foreseen some difficulties by browsing through NetBank’s securities filings. Specifically, NetBank’s Form 8-K Current Report filed on August 6, 2007 noted that the Company received a notice of delisting from NASDAQ, as well as written notice from the Office of Trust Supervision that NetBank was undercapitalized. If you have a sizeable account balance at your bank, savings and loan, or credit union, you might want to take a peek at your financial institution’s securities filings. No one wants to be a creditor of a defunct bank.

I’ve added NetBank Inc. contracts to the site.