Would you rather put your money in a safe bank or an unsafe bank? Silly question, right?
OK, let's phrase it a little differently. Would you rather put your money in a bank that a national magazine ranks among the "100 Safest Banks in the Country," or would you be satisfied with an unranked institution?Given that all banks have the same up-to-$100,000 federal guarantee on deposits, does any of this matter?
Money magazine, which compiles the annual list, thinks it does, as do the people who run The Bank of American Fork; Community First, Clearfield; and Barnes Banking Co., Kaysville, the three Utah banks listed in the October issue of Money as being among the nation's safest.
"The safety issue means a lot to some people, so much so that they normally wouldn't put any more than $100,000 (the federal guarantee limit) into any one bank," Barnes Banking President Curtis H. Harris told the Deseret News.
"But because of our strength, we have customers who feel we are as strong or stronger than the FDIC (the federal entity that guarantees bank deposits) and have deposits of several millions with us. They are that confident."
Money magazine bases its rankings on a bank's equity to assets ratio, with Barnes' 16 percent being well above the 12.32 average of the magazine's 100 safest.
"This means we can go through some very rough times and still have plenty of capital to back us up," said Harris, whose unit bank (one office in Kaysville) has assets of $88 million. Barnes will celebrate 100 years in business in 1991. The bank's stock is held mostly by members of the community, said Harris, but no more than 15 percent of the shares are owned by any one individual.
O. Wayne Thornock, executive vice president of Community First, said it's an honor to be recognized as one of the nation's safest banks.
"To us, it means we have operated on sound conservative principles through the years; that depositors' money is safe with us here and we can continue to do business and help people."
All three of the Utah banks named by Money are relatively small operations located outside of the Salt Lake financial center. Does this mean small banks are inherently safer than large ones?
"Not necessarily," said Thornock. "It's just that we have operated conservatively and have adequate reserves. We have used prudent loan policies through the years. We have not loaned money to foreign nations or to risky operations."
Community First employs about 50, has assets totaling around $60 million and has offices in Clearfield, Sunset, Syracuse, Clinton and Layton.
The Bank of American Fork also made Money's "safest" list last year (when the list included 175 banks), and chairman Orville Gunther believes that in these unstable times, the public is well served by knowing which banks are the safest.
On the other hand, Gunther is not happy about taxpayers - including himself and his bank - having to bail out the savings and loan industry because it failed to follow the management practices which earned his bank a spot on the list of safest banks.
It particularly irks him, he said, to see American Savings and Loan Association in American Fork offering higher interest rates on deposits than Bank of American Fork and other financial institutions are able to offer.
"If we look at the history of the S&L associations, those people who put rates first and safety second actually contributed to this decline in the savings and loan industry," said Gunther. "To cover those high rates, their management made imprudent loans at high rates that proved to be uncollectible, so now the burden falls on you and me as taxpayers."
Gunther said there is a class of people who will go after the highest interest rate available, but there is another class who put safety first, and those are the people who will do business with the three banks on Money's list.
Unlike Community First's Thornock, Gunther believes small community banks are inherently safer than large ones because they are typically owned by people in the community they serve. "These people always have a greater interest in the institution and in its having sound management than do absentee owners," he said.
Bank of American Fork has one branch office in Alpine and about 200 stockholders, mostly American Fork residents, with Gunther's family holding the majority of shares. The bank was founded in 1913.