As a followup to Friday’s post about bank failure rates, I thought I’d highlight a recent MoneyRates.com analysis of the best and worst states for banking.
They rates banks based on customer satisfaction, stability (state-by-state failure rates), availability of high interest rates, and size of the banking community (more choices is better).
The top ten were:
- Ohio
- Kentucky
- Lousiana
- Montana
- West Virginia
- New York
- Virginia
- North Dakota
- Colorado
- Texas
And the ten worst (from very worst to 10th worst) were:
- Illinois
- South Carolina
- Oklahoma
- Minnesota
- Georgia
- Rhode Island
- North Carolina
- New Hampshire
- Hawaii
- Indiana
While I wasn’t terribly surprised to see the like of Georgia, Illinois, and Minnesota on this list (all were in the top five in failures from 2008-2011) I was blown away that Florida, California, and (to a lesser extent) Washington didn’t fall in the bottom ten.
Florida and California were 2nd and 4th for bank failures from 2008-2011 and Washington was tied for 5th with Minnesota.
You would think that the # of banks would be proportional to the size of the state but that isn’t really so. The banking regulation and market can vary from state to state. So a smaller state can actually have more banks than a larger one due to exactly how their laws are setup.
For example California has 239 banks and Georgia has 228. Almost the same number of banks yet CA’s population is close to 4 times as large as GA’s.
I think this is one reason leading up to why Georgia has had so many failures. Its my understanding that Georgias laws have favored smaller banks more which lead to a lot of small banks. Those smaller banks however ended up less stable so they’ve had a lot more failures.
Plus the state that a bank is based in is where its said to fail even if the bank operates in many states. If a big bank like Washington Mutual fails then that dings WA but it impacted much/most of the country. And a bank may be based in one state versus another simply due to taxes or details of the laws and nothing really to do with the financial stability of the states economy.
Regardless of which state the failures occurred, it’s pretty scary to think banks are failing at all. I’m currently using Capital One in NY – and I’ve seen rates increase slightly over the past year.
I use PNC who has always seemed reasonable in their rates. Well maybe not what they pay out in savings, but what bank offers that right now. I live in Maryland and would think they would be closer to the top 10 rather than the bottom 10 but could be wrong. I have only lived in the two more better off counties so I do not know about other counties.
Fair point, Jim. California almost certainly has more banks than a much smaller state.
The one source looks back 2008-2011. The Moneyrates analysis may not look back that fare and may just look at most recent year. For example there were 17 bank failures in Washington from 2008-2011 but zero failures in 2012.
You also have to consider failures as % of banks rather than as absolute numbers. Theres almost always going to be more bank failures in a very large state like California as they’d have a large population and a lot of banks. So its the % failure rate that is a better measure.