Data on Banks, S&Ls; Available, but Be Vigilant

Q: The Treasury Department’s proposed overhaul of the nation’s banking system has me thinking that federal depository insurance as we know it will soon be a thing of the past. If this happens, depositors more than ever will have to be sure that they are dealing with a financially secure bank. But how can we get the information we need? Are there sources to help us evaluate the safety of these institutions? -- T . L .A .

A: Although a similar question was answered less than three months ago, several readers have raised it again, especially in response to the Treasury Department’s latest proposal to restrict federal depository insurance to $200,000 per depositor per institution.

There are several sources of reliable information about banks and savings institutions from regulating agencies and trade associations. Some of this information is probably too detailed for you, and most of it may be out of date by the time you get it. A bank rarely gets in deep trouble quickly, so depositors who read the financial press are usually well warned of a thrift’s problems and almost always have more than enough time to pull out deposits that exceed the insurance limits. Still, depositors should evaluate the safety of their bank before investing in long-term certificates of deposit or other instruments that would impose interest penalties for early withdrawal.

Here’s a rundown of some of the best information sources:

* Veribanc in Boston provides its own bank rating reports over the telephone and follows them up in writing. The reports cost $10 for the first institution and $3 for each additional one. Reports are available by calling (800) 442-2657, 5:30 a.m. to 8 p.m. (Pacific Standard Time) Monday through Friday and 5:30 a.m. to 12:30 p.m. (PST) Saturday.

* Bauer Financial Reports sells lists of banks and savings and loans for each of the 50 states, detailing the thrifts’ assets, liabilities and the tangible capital ratio--one of the three key regulatory benchmarks used to evaluate the financial health of thrifts. The lists sell for $25 per state--except Texas and Illinois, which cost $35. Write to Bauer Financial Reports, P.O. Drawer 145510, Coral Gables, Fla. 33114. Be sure to specify the state you want.

* Sheshunoff Information Services also rates banks each quarter and publishes reports on individual banks as well as industrywide lists detailing every institution in the country. Individual bank reports cost $85 each; industrywide assessments are $95 per quarter and $275 for the entire year. The toll-free number is (800) 456-2340.

* IDC Financial Publishing publishes quarterly and annual reports evaluating and ranking the nation’s banks. The cost is $125 for a single quarterly report and $349 for an entire year’s subscription. The organization’s toll-free number is (800) 544-5457.

* The Federal Home Loan Bank of San Francisco, which monitors state and federally chartered savings and loan associations in California, publishes an annual directory of its members. The listings include a “statement of condition,” which details an institution’s assets, liabilities and net worth. The 1991 directory, available in April, will cost $25 and can be purchased by mail by writing to the Federal Home Loan Bank, P.O. Box 7948, San Francisco, Calif. 94120.

* The California Bankers Assn. publishes a similar directory; it includes California banks as well as savings and loan associations. This directory, called the Financial Institution Directory of California, also ranks the institutions by their asset size. It is available for $22 by calling (800) 458-8849.

One caveat: The information in these and other reports is often three or more months old. Much can change in that period. So pay attention to news reports and other sources of financial information. Being a depositor is not as easy as it once was and can require attention and vigilance.

Widow’s Loan Strategy Pays Well but Has Risks

Q: I am a 73-year-old widow who has invested about one-third of my net worth in first and second trust deed construction loans to custom home builders. My investments are all in a still-thriving area of Central California, and I have never had problems. The interest that these loans generate is quite good--13% to 15%--and I have known all the people with whom I deal for years. What are the risks of what I am doing? -- S. N .

A: To be honest, it sounds a little late to be asking about the risks of your strategy, but here goes anyway:

As with any high-return investment, the risk you face is proportionate to the gain you stand to realize. Before you make another of these loans, think about what would happen to you if one or all of your borrowers defaulted.

How dependent are you on the income that these loans generate? In those cases where you hold the second trust deed, could you afford to step in and take over the primary loan to protect your position? How confident are you that the homes on which you hold the loans will be completed and sold? Are you sure that the total amount of the loans outstanding on the property is less than the property’s value?

In the current climate of falling real estate values, lenders often find that loan totals exceed a property’s value and that they are left with nothing if the borrower defaults.

On the face of it, there’s absolutely nothing wrong with your strategy. It has worked quite well for others, and since you seem to know the people to whom and through whom you are lending, perhaps you fare as well. However, there is a downside, and now you know what it is.