NetBank Fails, Assets Disgorged To FDIC, ING

NetBank is the first federally regulated bank to fail thanks to the ongoing subprime meltdown. The failure spotlights the importance of FDIC insurance, which guarantees deposits of up to $100,000. Customers who abided by the FDIC limits and deposited less than $100,000 with the internet bank will become ING customers, and will have immediate access to their funds. The 1,500 customers who collectively deposited $109 million above the FDIC limits stand to lose half of their funds.

NetBank was one of several financial partners of the US Airways. The Tempe-based airline offered promotions such as 4,000 miles to open a NetBank checking account, 4,000 miles for a money-market account and 5,000 miles to deposit at least $15,000 into a NetBank certificate of deposit.

The announcement annoyed at least some customers in U.S. Airways’ Dividend Miles frequent flier program.

“I’m flabbergasted to think a company they’re involved with would go out of business,” said Scottsdale resident Frank Simons, a US Airways frequent flyer who said he deposited money with NetBank. “I feel there’s a level of culpability, since they solicited me through the Dividend Miles program.”

More information on the bank’s closing is available on the FDIC’s website.

Regulators Shut Online Bank NetBank [AP]
Failed Bank Information [FDIC]
PREVIOUSLY: What Is FDIC Insurance?
(AP Photo/Mary Ann Chastain)

Comments

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  1. azntg says:

    Ooh… ouch. It definitely sucks to see a bank out of business (particularly if isn’t featured every other day on the Consumerist that shows that the bank has a penchant for screwing customers over and over again), but then, they should’ve known better. Lend to people who cannot pay for them? Maybe one or two of the bunch could, but c’mon!

    Lesson definitely learned about FDIC Insurance. I doubt I will even be able to have $100k as liquid assets in my lifetime, but point taken anyhow.

  2. Mike_ says:

    Neato. I’ve been with Netbank for about 7 years.

    I’m able to login to my account. The navigation menu has been gutted. I can see account balances and transaction details, but that’s about it. There are notices posted on the site saying everything will be back to normal at 5:00 PM tomorrow.

    I wrote two checks yesterday. The FDIC site says they’ll be paid as usual. I had at least one pending Billpay payment, too. That will supposedly be back online later this weekend, as well.

    Fortunately, I don’t keep all my eggs in the Netbank basket. For me, this is a minor inconvenience at worst. I feel bad for the folks who were over the FDIC insurance limit. I’m curious as to whether any of Netbank’s former executives fall into that category, or if they were smart enough to keep their own money out of their failing bank.

    I switched to Netbank for their higher interest rates and free billpay. When major banks started offering high yield savings, I moved most of my money out of my Netbank checking and money market accounts. Lately, I’ve been keeping as little money as necessary there. So I suppose I’m at least partially responsible for their collapse. Sorry ’bout that.

  3. DadCooks says:

    How many of the other online banks are heavily exposed (invested) in sub-prime realestate?

    Where can a person go to find out where these online banks are investing their money in order to return their high interest rates? I am sure it can be gleaned from their annual reports, but how about a CURRENT and clear accounting?

    It will also be interesting to see where Netbanks execs and officers go and how much of a “golden parachute” they get.

  4. headon says:

    @MIke Way to go your $4.00 balance is what tanked them. Rest easy dude your absolved. Heres a crazy thought, it’s not at all about you!

  5. [INITIATE SNARK MODE]

    @headon: Apparently, it’s not all about usage or punctuation, either.

  6. notallcompaniesarebad says:

    The irony of all this? The depositors were “sub prime lenders”! They demanded high interest rates from a firm that couldn’t afford them. And when trouble hit the firm, they bankrupted it!
    The difference is these guys get their money back. A bank may not recover all their funds from a homeowner that goes under.
    Interesting when the shoe is on the other foot, isn’t it?

  7. Mike_ says:

    @headon: I commented because I was directly affected — probably one of the very few Consumerist commenters who logged into his bank this morning and found a statement from the FDIC.

    (Die in a fire, troll.)

  8. notallcompaniesarebad says:

    The FDIC is an interesting thing. Like all insurance (car, home, health) it makes transactions and life a lot easier but it also encourages a certain amount of moral hazard and adverse selection. On balance, though, I’d say it’s a good thing (even if a bit of my deposits have to go to pay these claims). Witness the bank run they just had in the U.K.

  9. Trai_Dep says:

    Mike_ Yup, you killed them. You… You… You internet-bank murderer! :P

    Color me impressed for your being able to draw funds from your account. Yay, FDIC.

    I struggle to have sympathy for someone that has a balance significantly over $100,000 cash, in any one account (the FDIC limit is per account, not bank). But I don’t struggle very hard. It’s a good policy. It’s your property: learn to protect it, or hire someone that can do it for you.

  10. cindel says:

    Any recommendations on a new bank that doesn’t pull chexsystems or telechecks?

    Going to miss Netbank but I refused to give my business to ING after costing me an inquiry on my credit report!

  11. krcasey says:

    Trai_Dep, that’s not exactly correct.

    FDIC insures up to $100,000 per depositor per bank, not per account.

    But you can sometimes get more than 100K coverage at the same bank if the money is held in accounts that fall in different ownership categories (e.g. single, joint, retirement.)

    Recommended reading:
    [www.fdic.gov]

  12. Trai_Dep says:

    @krcasey: Thanks for catching that, I didn’t know. Wonder where I picked up the “different account” thing from? (blush)

    And, yeah, I’d be one of those guys hiring someone that knew what to do w/ my excess deposits. :D

  13. FLConsumer says:

    Having worked with the FDIC on several occasions, I must say that they’re one of the best federal agencies I’ve worked with. Absolutely professional, intelligent, and not a “follow the script/book” agency. They know what the rules are, know each case is different, and they’re rather efficient. I think the real story out of this case is how well the FDIC works. Literally, they officially take over on Friday (which means they’ve been looking into it far longer), then transfer everything in a matter of days.

    Contrast this to the Northern Rock bank in the UK, where people are pretty much screwed.

  14. Trackback says:

    Did you have a NetBank account? If so, you don’t anymore because it’s now an ING Direct account.

  15. Snarkysnake says:

    Sad to see Netbank walk the plank, but really, you could see this one coming a mile away. Signs,Signs,everywhere signs :

    The stock had been in a steady slide for many , many months. (it traded for mere pennies right before the end).Healthy banks don’t trade for pennies.

    Everbank took a look at their operation and called off their merger /takeover. Red flags flying everywhere on that one (when has a bank EVER resisted the urge to merge and fire hundreds of loyal employees ?)

    There was lots of “buzz” in the Atlanta newspapers about the doors closing for this company for some time. When you read between the lines of carefully parsed statements by the executives and competitors,it was clear that they weren’t going to make it. A takeover was their last chance.

    Finally, if you have an account at ANY U.S. bank that could put you over the FDIC limit on coverage,you are lazy,unmotivated (or are getting some BAD advice from somewhere).There are few really good things in life,but FDIC insurance is one of them.Read this sentence twice if you need to,but burn it on your brain: The Federal government will PRINT money and send it to your bank in an armored truck before you will lose your funds in a federally insured account.Banks come and go,but the FDIC will make you whole if you just keep your balance below $100,000. (Several friends keep their accounts at $95,000 to allow for any pesky interest payments and when their balance goes above that,they open another account AT ANOTHER BANK).This insures that :

    They will always get all of their money back,no matter what.

    They will never be seen on the 6 o’clock news crying into the camera about how unfair it is that they had all of grandma’s money in a CD at a bank that closed and now they have to get in line behind all the other unsecured suckers while the feds sort it all out. (I have seen this, it’s pathetic)

  16. notallcompaniesarebad says:

    @FLConsumer: “I think the real story out of this case is how well the FDIC works. Literally, they officially take over on Friday (which means they’ve been looking into it far longer), then transfer everything in a matter of days. Contrast this to the Northern Rock bank in the UK, where people are pretty much screwed. “
    I think you’re right: it’s amazing how well the operation seems to have gone. Say what you will about moral hazard, but on the ground, this works as well as it can.

  17. mac-phisto says:

    @cindel: chexsystems & telechecks inquiries don’t show up on your traditional credit reports, so they won’t affect your score at all. chexsystems is owned by FIS (fidelity info systems) & telechecks is owned by FirstData. neither are affiliated directly with equifax, experian or transunion.

    every bank account agreement i have seen requries you to consent to their ability to pull your actual credit report (thru the big three) at their whim though, so good luck with that.

  18. alfista says:

    Been a netbank customer since they acquired me from Compubank several years ago. Although I liked them more than any of the other brick-and-mortar banks, my wife has never been comfortable with them – I guess I’ll have to deal with that wrath. Luckily not all our eggs are in their basket, but unfortunately this was not because we were trying to keep less than $100k in each :-( cleaning up all automatic bill payments, direct deposit, etc. is going to suck…

  19. alfista says:

    And yeah, what gives with an INTERNET bank not even sending an EMAIL to communicate this situation?

  20. CunningLinguist says:

    I have Ivy League degree, and can make polite -yet pithy – constructive criticisms.
    I hereby respectfully submit to this beauty contest.

  21. CunningLinguist says:

    It’s interesting that the FDIC is even going so far as to give 50 cents on the dollar for amounts Over $ 100K to the stoopid Netbank depositors whose accounts were too big. (!)

    Screw those rich bastards if they can’t even read the disclosures- they can obviously afford it.

    Give the money to poor people to repair bridges (!)

    Why is FDIC… THAT concerned that they think it’s necessary to spend our taxpayer money so gratuitously so as to maintain consumer confidence: do they know things that we don’t?

  22. ColdNorth says:

    @Alfista: The staff were probably busy worrying about whether or not they would see their last paycheck deposited into their netbank account.

    Plus, my guess is that the FDIC blew the whistle and called everyone out of the pool once the bank went bust.