redofinancing.com

By taking the time to look into what is possible in regard to how much money can be received from refinancing a home a lot can be done. There are a lot of different ways to spend the money after re-financing a home, although this money should be spent carefully. There is a huge market out there for those who are looking to refinance their home, and often the rates on these financial instruments are quite appealing. So long as the money is going to be spent responsibly there is the ability to find ways out of a number of different financial dilemmas. Making sure that whoever you go to for a cashout refinance is reliable is something that one should always look out for.

There are a number of different financial institutions out there who will accommodate someone who is looking to refinance their mortgage. Often these instances will involve very reasonable rates and a great deal of latitude. When re-financing a mortgage there is the opportunity to take as much or as little of the value out of it as is needed. All of the equity need not be taken out in order to secure a loan. This means that a lot of can access this function without having to put all of their equity on the line. This means that the money can even be re-invested in home improvements or any number of other things. So this makes re-financing a very versatile financial instrument for those who are looking to take advantage of it.

So be sure to always look into exactly how much money you need before moving forward, otherwise things can become very difficult. The right amount of money being borrowed versus too much or not enough can cause a lot of problems. This is something that can be easily avoided through proper budgeting, and this should definitely be completed prior to seeing anyone. Refinancing a home is a serious decision and should not be rushed through or taken lightly. So be sure to always move through this process carefully while also keeping one’s necessary time tables in mind. If there is a rush to acquire the money necessary to do something vital with refinancing then that should be considered prior to applying.

Shopping around and considering more than one financial institution prior to making a decision is important. Different financial institutions will offer different rates and different incentives, some will be a better fit for some situations as opposed to others. Financial professionals are always more than happy to answer any questions someone might have about refinancing their mortgage. Be sure to ask about your specific situation and do not be shy about anything you have on your mind. There are a number of different situations which most people do not think of, but financial professionals might. So take the time to find something that works for you, and never rush into the first offer that appears as if it might hold some value.

There are many reasons that a person may choose mortgage refinancing. This option allows a wide range of financial possibilities. For some, refinancing comes out of need for extra cash. Others may see refinancing a home loan as a way of lowering interest or payments. Those who have recently increased income may choose loan refinancing to shorten the term of the home loan. While some homeowners refinance simple to secure a fixed interest rate. No matter what the reason is behind choosing mortgage refinancing there are some things one should know. Below are some tips regarding home refinance which you may find helpful.

How to determine if refinancing is right for you?

If you are considering redoing your home loan make certain the choice is right for you. Ask yourself what benefits you will gain. As well, look at the negative aspects mortgage refinancing may bring. Here are some points to consider:

• If you are refinancing out of fincial need make certain that the benefits of refinancing out weigh leaving things as they are.

• If you are refinancing to secure a lower interest rate keep in mind that most people do not see lower payment from this type of refinance for up to three years. This may be a good choice in the long run. However, do not expect to see immediate results.

• Are you prepared to pay closing costs and application fees? These may be quite expensive. It takes many people several months to regain the cost of these fees in lower monthly mortgage payments.

• Does your current mortgage or the mortgage lender you are considering offer fixed interest rates. Most often fixed rates are the better choice over those which fluctuate.

• Will the new payments be within your budget?

What is Cashout Refinance?

Cashout refinance occurs when a homeowner refinances to acquire a cash loan against the equity in their home. For example, if the home is worth $210,000 and the person only owes 110.000 they have an equity of around $100,000. They may choose to refinance the home for $140,000. The person would receive $30,000 in cash. Their new mortgage amount would be $140,000 plus interest. This may be an option for someone with immediate financial need. However, when considering a cashout refinance keep in mind that you are lengthening the time it will take to pay the home off. As well, you will be paying much more interest in return.

Be aware of variable rates when refinancing a home loan.

Variable rates are interest rates that fluctuate. This means your monthly payment amount could change at any time. If you are living on a budget increased payments could become an issue. This could cause great financial stress. It is best to choose a mortgage which offers a fixed interest rate. This way your payments will remain the same for the duration of your mortgage.

Mortgage refinancing may or may not be a wise choice. If you are considering this option take time to think it through. Do not rush in to a hasty descion. If you do find refinancing to be the best option for your financial situation choose a reputable lender. Also, make certain to understand all of the new terms before you agree.

At the height of the recession, President George W. Bush and the congress authorized a bail-out of banks and investment companies headed for failure.

In a similar plan to bail out Fannie Mae and Freddie Mac, the government authorized the Treasury moved forward with the plan to stabilize the financial industry, and to an extent the economy. The Treasury purchased $225 billion in mortgage-backed securities insured by Fannie Mae and Freddie Mac.

These securities were considered toxic because investors believed that the underlying mortgages were risky, and the price on the open market did not reflect that risk. When investment banks couldn’t get rid of these bad products on the open market, the Treasury stepped in and paid a discount to acquire the assets. This helped the investment banks pad their balance sheet with more cash, improving their financial conditions, avoiding bankruptcy or failure, alleviating to some degree panic in the market that could have led to a more damaging recession or economic depression.

One year ago, the Treasury began selling these mortgage-backed securities, and as of today, the government no longer has any of the assets purchased under this bailout plan. Not only that, but the Treasury earned $25 billion on its $225 billion investment. That works out to a total return of about 11 percent over about three and a half years (the purchases began in October 2008), though that doesn’t take into account the timing of the buying and selling transactions. The good news is that the Treasury did not lose money on toxic assets, a legitimate concern at the time.

The concern is not over, however. The quality of the underlying mortgages is still in question. The investments could still fail.

… [I]f the mortgages behind those securities fail, taxpayers will still be on the hook, since federal housing giants guarantee the loans and taxpayers have been propping up Fannie Mae and Freddie Mac.

The $25 billion earned through the bail-out of Fannie Mae and Freddie Mac will go to paying down government debt.

Photo: cliff1066
CNN

The original version of this article, Taxpayers Earned $25 Billion on Treasury’s Mortgage-Backed Securities Bail-Out, is copyrighted by Consumerism Commentary.

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As a Mets fan, though these days I try not admit being so, it’s bittersweet to see the organization settling its legal troubles relating to Bernie Madoff’s Ponzi scheme. On the one hand, if the owners of the Mets were found guilty of ignoring the possibility of fraud, it could have spelled the end of the baseball team. The prosecution was looking for a restitution of $1 billion from the Mets’ owners in order to compensate other investors who were swindled by Madoff. The lawyers reached a settlement agreement, wherein the charges will be dropped with the owners of the Mets paying $162 million.

Compare this $162 million to a player’s contract; CC Sabathia’s contract with the New York Yankees is $161 million for seven years. The Mets owners will likely have the benefit of paying the settlement, if approved by the court, over a number of years, but for the same expense, the team could have added high-quality players or kept José Reyes from defecting to Miami. Reyes signed a six-year, $108 million contact with the Miami Marlins; had the Mets avoided investment trouble, the team might have been able to offer Reyes a competitive deal.

The good news for the Mets gets even better. Not only do they avoid paying $1 billion in restitution, the owners are eligible to receive restitution from the trustee. As those found guilty of fraud pay into the fund to help those who were defrauded recover their losses, the owners of the Mets will receive their portion from these proceeds. Any money recovered can be used to pay the settlement. The owners of the team could receive as much as $178 million, more than they need to pay through the settlement.

Is it possible the team owners could come out ahead as a result of their involvement with the Madoff scheme?

While this is good news for the team, the investors who were truly swindled by Madoff — if you believe anyone was truly swindled, as it’s the investor’s job to ask questions and understand their underlying investments — will not be able to recover their losses to the extent they would have hoped.

The $1 billion originally sought from the Mets’ owners would have been a great benefit to others who suffered losses, those who might have invested at a farther distance from Madoff’s team, with more layers of investment professional in between, obscuring the relationship between the end investor and the man behind the curtain.

Photo: The US Army
New York Times

The original version of this article, Mets Will Pay $162 Million to Settle Madoff Suit, is copyrighted by Consumerism Commentary.

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Parents who offer their young children an allowance or pocket money are helping to introduce the concept of money at an age when they are susceptible to ideas they will hold for the remainder of their lives. It’s a good idea to allow kids to gain exposure to to concept and application of income and the decisions that need to be made surrounding that money. Introducing money-related concepts at an early age helps to reinforce the idea of financial literacy, a quality that many people believe is missing in the general public.

There are generally two ways to look at offering an allowance, particularly as children are gaining the ability to handle larger responsibilities. Allowances can either be tied to chores and used as a motivational tool to inspire help around the house, or they can be given free of any condition. There are dangers to both approaches.

Approach #1: Allowance in return for chores and help around the house. This is the favored approach for many parents because it emulates the experience their kids are likely to have later in life: they will be rewarded in money for the quality and quantity of the work they provide for someone else. I’m not a fan of this approach for several reasons.

• Helping around the house is not a job. A housewife doesn’t get paid for cleaning; a father who stays home to babysit does not get paid per hour. Helping around the house is something that everyone who can do should do simply because they are a member of the household. There will be more than enough time in someone’s life to earn money in return for work.
• This type of allowance glorifies money as a reward. Money is your “reward” for working for someone else as an adult, but without proper control in formative years, children could grow up thinking that money is the only reward for working. This type of attitude could lead the children as they mature to choose only those careers that pay high salaries or consider marrying only a spouse who comes from money. These things aren’t bad per se, and they are legitimate choices, but to focus on money at the exclusion of all other things that make life meaningful could lower their quality of being. With the correlation between money and work ingrained, money becomes a primary motivator. This can make it difficult for someone to succeed or excel at their job, because they might wonder why they would put in any extra effort if not compensated immediately.
• You become an employer, not a parent. The relationship between a parent and a child is unique, but introducing the idea that being a member of a household warrants a payment is a dangerous mangling of what should be a non-financial relationship. The power that a parent has over a child is now linked to the financial relationship rather than the familial relationship.

Approach #2: Money should be available, but not in return for working around the house. This invites childhood misconceptions. They may believe that money is available whenever they need or want, or that their parents will always provide money. Regardless, I believe this is the better choice as long as it is controlled and accompanied by guidance in terms of saving, spending, and giving responsibly.

All the guidance you could provide as a parent is good in helping children grow up financially literate. Even through teenage years, when children might be interested in getting a job outside of the house, children’s attitudes about money are still in formative stages. Any lessons you may impart will not be effective without good modeling. The best thing you can do for children is to manage your own money responsibly and let them see what’s happening behind the curtain. Take them with you when you go to the bank. Let them see the work you do for charity or encourage them to learn about the organization you’re involved with. Have positive financial discussions with your spouse without being secretive. If your experience with money isn’t positive, let your children see that as well.

I don’t have any children yet, so my opinions could change when my time comes. What are your thoughts about motivating children through an allowance? What approach works for you?

Photo: woodleywonderworks

The original version of this article, The Dangers of Motivating Kids Through an Allowance, is copyrighted by Consumerism Commentary.

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Today on the Consumerism Commentary Podcast, Bryan J Busch talks with Ainslie Simmonds, Chief Marketing Officer of LearnVest.

They discuss the free and paid features of LearnVest, how people are using the service and what sets it apart from other methods of financial planning.

Table of contents

[00:00] Introduction from Bryan J Busch
[00:34] Interview with Ainslie Simmonds
– [00:45] Overview of LearnVest
– [01:02] Why focus on women as an audience?
– [02:05] LearnVest’s free educational products
– [03:51] Connecting accounts and budgeting
– [05:23] What LearnVest users like and want more of
– [07:24] Different options for paid planning services
– [08:18] Courses: a more involved boot camp
– [08:47] How does working at LearnVest affect employees?
– [10:15] LearnVest vs. investment firms
– [12:11] High-quality content from classically trained journalists
– [13:11] Future plans for LearnVest.com
[14:32] End

We always welcome feedback from listeners. If you have any comments for this episode or for any other, or if you have suggestions for future episodes, please leave us comments here or email us at podcast at this domain name.

Theme music by Mindcube.

The original version of this article, Podcast 152: LearnVest, is copyrighted by Consumerism Commentary.

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Preservation of capital is an important aspect of any financial plan, but in today’s economy, this is impossible without taking on some risk. At one time, you could confidently place any money you might need within one year in a high-yield savings account and be relatively confident that your money could buy at least as much a year in the future than it could buy the day you deposited your funds. Interest rates were relatively coordinated with the rate of inflation.

That’s not the case today. The Department of Labor released the latest inflation data. It should be no surprise to most consumers that the changes in the price of gas led to an increase in the energy index of 3.2 percent over the last twelve months (ending February). The inflation rate for all items is 2.9 percent. While the government-reported inflation rate doesn’t translate to the actual increase in expenses any one individual experiences year over year, it’s the best benchmark we currently have for a generalized view of the increase in prices.

And it’s the measure we use to determine how much purchasing power savers lose. If your savings account isn’t earning at least 2.9 percent after tax, you’re losing money in real terms by placing it in a bank. With banks offering less than 1 percent interest before taxes on their best high-yield savings accounts, purchasing power losses accelerate. Placing your cash under a mattress to earn zero interest is a worse idea, so are there any other options providing a safe way to maintain purchasing power?

Not really. Using a savings account is great for funds you might need in an emergency, because you can access the money quickly without worrying about selling an asset. Savers have to understand that having an emergency fund is a compromise; in return for the safety of an FDIC-insured account, savers waive the right to preserve real value, at least in today’s economy.

Any other options for preserving capital introduce risk.

• Investing in the stock market. Despite some recent frenzy about the stock market, with prices of the major indexes reaching near-term highs and day-over-day increases exceeding the best-performing day of the year thus far, there have also been daily price decreases reflecting the worst performance of the year. The stock market is incredibly volatile. For the long-term, it’s a good place to be, but there’s no guarantee that your capital will be preserved for when you need it.

• Buying real estate. For years, families saw the house they live in as a way to store their wealth. The belief was unfortunately based on the myth that real estate values never decrease. Well, any asset can find itself in a bubble, whether they be tulips, stocks, or houses, and people who relied on real estate’s ever-increasing value to make a living have had a difficult time in recent years. It’s been terrible news for real estate flippers, but the effects hit single-house homeowners just as hard.

  Although timing the market is always dangerous, with low prices and low interest rates, if you can qualify and if the time is right for your family, now could be the right time to buy a house, particularly if you’re looking to live there for a long time.

• Buying Treasury Inflation-Protected Securities (TIPS). You can buy this investment product directly from the U.S. Treasury. Twice a year, you receive interest as well as an adjustment to your principal balance based on the inflation rate. This is basically a bond that will only lose value in the event of deflation. If you must sell TIPS after the value has dipped below your initial investment, you will still receive your full initial investment back.

  There’s no risk in losing money, and this is the closest you might be able to get to true preservation of capital during inflation. Keep in mind, however, that the government’s reported inflation value doesn’t necessarily reflect any one household’s experienced rate of inflation. The government’s rate used for calculating TIPS adjustments, the CPI-U, uses the prices of a combination of goods that weights items in a way that might not be relevant to most consumers.

• Buying gold. Investing in gold is traditionally a good way to hedge against inflation, but the price of gold fluctuates. Like all commodities, the value of gold at any particular time is subject to the whims of commodities traders. An investment in gold is not as stable as its reputation. The price fluctuation may be due to fluctuations in the value of the dollar or of any other fiat currency, but the cause is irrelevant because the U.S. dollar is the world’s standard for currency, and if that ever changes, it would be another currency or combination of currencies that becomes the standard, not a commodity like gold. The days of the gold standard are over.

  Furthermore, most people who invest in gold use ETFs or mutual funds due to convenience. It would be inefficient and expensive to store and secure a significant amount of physical gold bars. Once you are dealing with electronic trades rather than a physical manifestation of metal, you’re subjecting yourself even more to the whim of the financial industry.

With low interest rates and increasing inflation, this may be a good time, from a financial perspective, to borrow money. You can do more with someone else’s money, repaying the loan with money valued less in the future. Borrowing money is of course not a good idea for people who could find themselves in trouble with debt, as interest costs could spiral out of control, but if you look at the numbers, borrowers are getting a much better deal, relatively speaking, than savers.

In today’s economy, if you are preserving your money, how are you doing so?

Photo: Lord Jim

The original version of this article, How Do You Preserve Your Money?, is copyrighted by Consumerism Commentary.

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Credit card debt is never fun, and developing a plan to get yourself out of the debt can be exhausting. Credit cards commonly charge interest rates of 20% or more, and if you miss a few payments the default rate can be even worse. Fortunately, if your credit is still decent, there is a way to make payments on your credit card without paying any interest. That’s through a solid 0% balance transfer offer provided by a new credit card.

0% APR balance transfer offers are commonly provided by credit card issuers to attract new customers. Credit card issuers rightfully assume that if they can attract you to their product by offering to house your debt for 0% interest, you’re likely to generate new debt after you’ve paid off the old debt. The trick in taking advantage of a balance transfer offer is to pay off the entire debt during the 0% introductory offer, then pledging never again to get deep into credit card debt. It’s easier said than done for many.

Many top credit cards offers now have balance transfer fees, but even with a fee, you could save thousands of dollars of interest charges by taking advantage of 0% APR balance transfer offers. Below you will find the best credit cards available for balance transfers as of March 2012. If you have a favorite balance transfer offer not included on this list, let me know and I’ll add it.

Slate® from Chase – No Balance Transfer Fee. If you have excellent or good credit, the Slate® from Chase – No Balance Transfer Fee offers a 0% introductory APR on both purchases and balance transfers for 15 months, without charging the dreaded balance transfer fee on transfers made within 30 days of account opening. All other transfers will be charged $5 or 3% of the amount of each transfer, whichever is greater. The Slate® from Chase – No Balance Transfer Fee also offers a low standard APR of 11.99%, 16.99% or 21.99% variable, depending on your credit history. The card comes with Chase’s Blueprint feature, which allows you to watch your spending like a hawk, paying down the purchases you want as soon as possible.

Like the Discover More Card listed above, you’ll avoid the 3% surcharge when making a balance transfer within 30 days of account opening, so if you can pay off your credit card balance in the 15-month timeframe, the total cost of fees and interest is zero. The Slate® from Chase – No Balance Transfer Fee also has the benefit of being annual-fee free, so depending on your needs, this card could represent the highest amount of savings.

Discover® More® Card. Discover More Card’s regular offer — not the no-fee for balance transfers offer mentioned at this top of this article — offers a 0% introductory APR on balance transfers for 15 months and a 0% introductory APR on purchases for 15 months. Discover has an introductory balance transfer fee of 3%, however after the introductory balance transfer period there is a 5% balance transfer fee ($10 minimum) making it slightly more expensive than Citibank to transfer a balance. With this card you’ll earn other benefits such as 0.25% cash back on your first $3,000 in annual purchases then 1% cash back thereafter. The opportunity to earn 5% cash back on rotating categories is also present and there is no annual fee.

Discover® Motiva® Card. With the Discover Motiva Card, the 0% APR on purchases and balance transfers is in effect for 15 months. During the introductory period, the balance transfer fee is 3%. After the introductory period expires, the regular interest rate is 10.99% to 20.99% variable*, depending on your credit history, and the balance transfer fee is 5% of the balance, with a minimum of $10. The Discover Motiva Card also includes a cash back rewards feature, in which card holders earn 0.25% cash back on the first $3,00 spent on the card and 1% cash back thereafter.

Chase Freedom® Visa – $100 Bonus Cash Back. The Chase Freedom® Visa – $100 Bonus Cash Back offers account holders a 0% introductory APR on balance transfers for 12 months and carries a 3% balance transfer fee ($5 minimum). The Chase Freedom® Visa – $100 Bonus Cash Back provides 1% cash back on all purchases and 5% cash back on rotating categories, subject to a maximum and qarterly enrollment, and is therefore one of my favorite cash back credit cards. The Chase Freedom® Visa – $100 Bonus Cash Back also offers a 0% introductory APR on purchases for six months and does not have an annual fee.

For diligent credit card users, balance transfer cards can be efficient tools for keeping your bank account balance intact, making better use of your cash than spending your own money for a large purchase. In great economic environments, you could earn interest on your money while paying off your expenses with a 0% interest rate. The proliferation of balance transfer fees makes this type of arbitrage more difficult, but with a few fee-free offers being available today, you might be able to earn interest on your card issuer’s money if you don’t fall into any traps.

The original version of this article, Best 0% APR on Balance Transfers Credit Cards, March 2012, is copyrighted by Consumerism Commentary.

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This is a guest article by Rob Bennett, a personal finance journalist and author of the blog A Rich Life. Rob developed the Passion Saving approach to money management; Passion Savers save not to finance their old-age retirements but to enjoy more freedom and opportunity in their 20s, 30s, 40s, and 50s.

You naturally get worried when you see the value of your retirement account drop. Most experts say that you should ignore the ups and downs of the market. But that’s hard. We all want to be sure that we are on track to meet our retirement goals.

The purpose of this article is to offer more detailed and more balanced advice that what is usually put forward by the experts. It is true that there are some circumstances in which it really is best to tune out the market noise. However, recent academic research shows that there are other times when stock price drops should be a serious concern.

There are six sorts of stock price changes you will experience and letting you know the proper way to react, given how stocks have always performed in similar circumstances in the past.

Situation one: Losses incurred at a time when stocks are selling at fair value prices

Say that stocks are priced at fair value (that’s a P/E10 value of 15). Should stock price drops be a concern?

No, not at all. Losses experienced from price drops starting from fair-value prices are always recovered over the next 10 years or so. So these are strictly temporary setbacks.

In these circumstances, the experts are absolutely right. The worst thing to do following a price drop starting from fair-value prices is to sell your stocks. That turns those temporary losses into permanent losses. You want to hold the stocks until the losses are recovered.

Situation two: Gains incurred at a time when stocks are selling at fair value prices

What if you instead see gains starting from a time when stocks are selling at fair-value prices? Are the gains temporary too?

Probably not.

U.S. companies generate enough productivity to support annual gains for the broad stock indexes of 6.5 percent real. So the market price is constantly moving upward. So long as your gains are not more than 6.5 percent real, those gains are not temporary but are yours to keep.

Even if the gains are more than 6.5 percent per year, there probably is not much cause for concern. The average 6.5 percent return for U.S. stocks is good enough that price changes that lower that number a bit for the future don’t cause serious problems for investors. So what if your returns in future years will be only 5 percent real or only 4 percent real? That’s still better than the return you could earn in alternative asset classes. You still want to keep your money in stocks.

Situation three: Losses incurred at a time when stocks are selling at super-low prices

These are the times when you want to be certain to be heavily invested in stocks. You can’t lose. Once prices are already low, they can’t go any lower. If prices remain at the same valuation level, you will obtain that average 6.5 percent return. If they move up to fair-value price levels (they always do in the long term), you will see a return far better than that.

There’s only one problem. Prices only go to super-low levels when most people are so scared about their financial futures that they are not willing to pay a fair price for stocks. You will be hearing lots of stories in the media at such times that the entire economy is about to collapse. You want to try to tune that stuff out.

If the economy really does collapse, there is no good investment class. So you wouldn’t be losing anything by being in stocks, If the economy recovers, those in stocks will generate more wealth in 10 years than they could in 20 years of investing at other sorts of time-periods. Do not get caught up in the gloom and doom!

Situation four: Gains incurred at a time when stocks are selling at super-low prices.

All gains incurred at times of super-low prices are yours to keep, even gains far above the 6.5 percent average return figure. This remains true until stocks are again selling at fair-value prices. So enjoy the ride up! You earned it by managing to tune out the gloom and doom message threatening to throw you off the horse.

Situation five: Losses incurred at a time when stocks are selling at super-high prices.

This is the circumstance in which I disagree with the advice offered by most experts in this field. Losses suffered starting from super-high prices are never recovered. When you pay more than a fair price for stocks, a portion of your money is going to the purchase of stocks and a portion is going to the purchase of cotton-candy nothingness. Prices always return to fair value. So these price drops are not so much losses as they are the market coming to recognize phony gains experienced at an earlier time for what they really are.

Situation six: Gains incurred at a time when stocks are selling at super-high prices.

Stocks are dangerous when they are selling at super-high prices. Gains experienced at such times just make the stocks you are holding that much more dangerous to hold. Investors going with high stocks allocations in such circumstances are living on borrowed time.

Photo: Images_of_Money

The original version of this article, Are Stock Gains and Losses Real?, is copyrighted by Consumerism Commentary.

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After the recession, the Federal Reserve developed a stress test for banks and financial firms too big too fail. The stress test looks at the financial condition of these corporations and simulates a new recession. Under the simulation, based on a worst-case scenario, not an actual economic forecast, banks pass the test if the companies have sufficient capital to continue lending; if not, they fail.

Here’s the doomsday recession scenario or assumptions applied to the banks’ financial condition:

• An unemployment rate of 13 percent.
• A 50 percent drop in the stock market.
• A 21 percent drop in the real estate market.

This scenario, which isn’t a prediction for the future, is non far-fetched. The recession in 2008 produced similar or worse results in the stock market and housing prices.

Overall, the banks fared better with this year’s test than with last year’s same analysis. The improvement is due to increased capital at the corporations. The companies lowered dividends to keep more money on hand for emergencies.

While fifteen of the nineteen banks were found to have sufficient capital to withstand the recession without assistance, four bank holding companies or financial institutions in the test failed to meet the capital requirements: Ally Financial, Citigroup, SunTrust, and MetLife.

Officials from the banks quickly responded to the Federal Reserve’s results.

Citigroup said it remains among the best capitalized large banks in the world. However, it said it would not be able to raise its dividend as it hoped, and would submit a revised capital plan to the Fed. Ally said it supported the idea of stress tests, but it disagreed with a number of the assumptions the Fed made, including overstating the bank’s potential mortgage losses. SunTrust could not be reached for comment. Metlife said it was unfair to apply the same tests to insurers as it did to banks.

These companies’ failures isn’t too concerning for customers. Customers shouldn’t be worried that their savings accounts aren’t safe or their insurance policies are in danger. No one has ever lost money in an FDIC-insured bank account. If these corporations don’t improve their financial situation by raising more capital or paying less to shareholders, a recession might result in more government intervention in the companies’ continued operation. The lack of sufficient capital in these financial institutions might lead to another bail-out scenario.

While not concerning from a personal perspective, there is reason to be somewhat concerned with the Federal Reserve’s findings. Financial institutions haven’t adequately planned for systemic risk. When banks fail or need a government bail-out, capital infusion, or partial nationalization, all taxpayers are affected. Shareholders need to be concerned. Will the recent bail-outs still fresh in people’s minds, the public and policymakers have likely lost its appetite for using taxpayer money for assisting banks that are “too big to fail,” and might rather see a firm like Citi go bankrupt rather than submit to a government takeover.

ᔥ Federal Reserve
↬ Fortune

The original version of this article, Three Banks and One Insurer Fail Fed’s Stress Test, is copyrighted by Consumerism Commentary.

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