Baylake Baylake Bank Answers Question, “Is My Bank Safe?”

Q: Is there a banking crisis?
A: The banking industry – traditional federally insured, federally regulated depository institutions which include local commercial bank, thrift, and savings banks – is safe and sound. All accounts held in commercial banks, thrifts, and savings banks carry FDIC insurance.

Q: How can we be sure?
A: Federally regulated banks are required to employ underwriting practices to avoid losses and to promote safe and sound operations. And when they do not operate appropriately, their regulators, who visit them annually, require corrective action.

Q: Who regulates banks?
A: That depends on the bank's charter. There are four federal regulators – the Federal Reserve Board; the Comptroller of the Currency; the Office of Thrift Supervision; and the Federal Deposit Insurance Corporation. The FDIC also insures deposits in its member banks up to $100,000 for regular accounts and up to $250,000 for retirement accounts. That insurance applies to accounts in FDIC member banks that are commercial banks, thrifts and savings banks. For example, Baylake Bank is state chartered, and regulated by the Federal Reserve in Chicago.

Q: Why is there so much news about the "banking" crisis?
A: The problem is that words matter. And when one word is used to mean several different things, it inevitably creates confusion. Sometimes a business that wants to add status to its name will call itself a "bank" even though it is not an insured depository institution—like a commercial bank, thrift or savings bank. Bear Stearns, the investment house headquartered in New York City, was not a commercial bank. It was an investment "bank." The word "bank" is also applied to mortgage firms. Their function, their purpose, and their regulation differ from federally insured depository institutions. And in this time of market turmoil, it is worthwhile remembering that only commercial banks, thrifts, and savings banks carry FDIC insurance.

Q: What about the continuing headlines and news reports about the "subprime crisis"?
A: Keep in mind that those reports typically fail to demonstrate the fact that the subprime lending crisis was caused by unregulated brokers and Wall Street institutions themselves, sometimes using the title "bank," and not by regulated, insured banks.

Q: Market turmoil is nerve-wracking on both a personal and business level. What is the federally regulated banking system doing about it?
A: It is providing stability. Having a safe and sound banking system to rely on shows the importance of the role banks play in local communities and in the nation's economy. They are the source of stability and of growth. That is true regardless of their asset size, their charter, or their business plan. And the vast majority of federally regulated, federally insured banks today hold more capital than the law requires. Our banking system is strong. This crisis will pass, as have all the others, and the result will be a stronger financial system with fewer unregulated players and a reminder that liquidity and capital are both important to solvency.

Q: If this is the case, how did those other institutions get in trouble?
A: Today's crisis underscores the fact that there are two ways financial institutions can fail. They can fail due to capital insolvency, or because they are liquidity insolvent. What many of those institutions are experiencing now is a lack of liquidity, not a lack of capital. Capital remains strong – strong for investment banks as well as for commercial banks and thrifts. The liquidity crisis that we have seen on Wall Street comes from a crisis of confidence. In the 1930s, before deposit insurance, banks failed because of a crisis of confidence that led to liquidity insolvency. That can also happen to an investment "bank" such as Bear Stearns. There is a crisis of confidence, lending lines are pulled, liquidity evaporates and insolvency is inevitable.

Q: What's being done to help those other institutions, and to help the economy?
A: The U.S. financial system is definitely being tested, but it is also showing its resiliency. For example:
• The Federal Reserve Board has acted to help restore liquidity by responding to the problems in a measured way. The Fed's action in regard to Bear Stearns is one example. In addition, the Fed opened up its lending facility known as the discount window to Wall Street firms, and is taking steps to restore liquidity to the markets.
• In addition, the Office of Federal Housing Enterprise Oversight has reduced the capital surcharge imposed on Fannie Mae and Freddie Mac so they can buy additional home mortgages.
• The Federal Housing Finance Board will allow the nation's 12 Federal Home Loan Banks to provide greater liquidity in the mortgage markets.

Baylake Bank Answers Question, “Is My Bank Safe?”

July 28, 2008
Ongoing market turmoil has many consumers wondering about the safety of their money in America’s banks. And while no one is immune to current economic conditions, according to the FDIC (Federal Deposit Insurance Corporation), earnings for the first quarter of 2008 show that Wisconsin banks outperformed their peers nationally. That is due to the Wisconsin banking industry’s historic conservative lending culture, as well as to experienced management teams, solid industry capitalization, low loan losses and almost nonexistent subprime exposure.

Recent news coverage has prompted many customers in local communities to contact banks with questions about their own FDIC coverage. Mike Gilson, Baylake Bank Lakeshore Market President commented, “Customers are asking about the bank as a whole as well as their individual coverage. It’s important for people to understand that the strength of a bank is defined by solid capital and good liquidity. Baylake, as with most local banks, continues to exceed regulatory standards. As the only financial institution in Door County to survive the Great Depression, Baylake Bank is here to stay.” He added, “For additional peace of mind, we encourage customers who have concerns to contact us to find out their specific coverage. It’s a simple but very useful calculation, and we’re more than happy to help explain it and answer any other questions.”

According to Kurt R. Bauer, President/CEO of the Wisconsin Bankers Association, “There is little risk of a Wisconsin bank suffering the same fate as IndyMac, the failed California-based mortgage lender. IndyMac’s downfall was due in large part to its business model of originating risky mortgages in the volatile California housing market. By contrast, Wisconsin banks did not engage in risky mortgage lending and Wisconsin’s housing market, although weakened, has not experienced anywhere near the collapse California’s markets have witnessed.”

American Bankers Association president and CEO Edward L. Yingling commented, “The FDIC insurance fund is huge, with more than $52 billion in assets to protect bank depositors. In this year alone, the fund will add an additional $5 billion from assessments on banks and interest earnings. It’s important to remember that the banking industry remains highly capitalized and well prepared for economic weakness.”

All FDIC-insured banks, such as Baylake Bank and many other local institutions, must meet high standards for financial strength and stability. The FDIC, with other federal and state regulatory agencies, regularly reviews the operations of insured banks to ensure these standards are met. The FDIC protects depositors against the loss of their deposits if an FDIC-insured bank or savings association fails, and is backed by the full faith and credit of the United States government.

FDIC insurance limits of $100,000 applies to all deposits of an insured bank except for certain retirement accounts, like IRAs, which are insured up to $250,000 per owner, per insured bank. The calculation of FDIC insurance coverage is based on the titling of accounts. There are different ownership categories including single accounts, joint accounts, POD accounts, and revocable and irrevocable trust accounts. Individual Retirement Accounts are insured independent of all other accounts up to $250,000 per individual.

For more information about FDIC Insurance protection specific to your deposits, contact Baylake Bank, or visit the FDIC Electronic Deposit Insurance Estimator (EDIE) at http://www4.fdic.gov/EDIE/.

About Baylake Bank
Baylake Bank employs over 320 individuals throughout northeastern and central Wisconsin and serves its communities from 28 financial centers in Brown, Door, Green Lake, Kewaunee, Manitowoc, Outagamie, Waupaca, and Waushara counties, and from its website at www.baylake.com. For more information call (920) 743-5551 or 1-800-267-3610.