Netbank, the Nation's First Internet Bank, Fails

The news traveled faster by internet than through the print media. Netbank went to the wall yesteray.

How can a financial institution with $2.1 billion in assets go under? It wasn't difficult, given the bank's overload of sub-prime loans, according to an article that could have made front page news in the New York Times but instead was buried in the Business Section Saturday, September 29.

Meanwhile, depositors going to the Netbank site for whatever reason found instead the large blue logo of the FDIC (Federal Deposit Insurance Corporation) with the stark news that it had taken over the bank, that it had no responsibility to inform the public before the bank's closure, and giving a link to click.

Clicking the link took the customer to other links providing more information. Netbank accounts are now held by the giant global financial institution, INGBank. Customers of the former Netbank will be able to continue for six months as if the bank still existed, at least as far as using ATM cards is concerned. Apparently, their direct deposits will move into their accounts.

Unfortunately, given the obstacles in place through the Patriot Act. overseas Americans have been especially vulnerable to keeping more of their personal assets in Netbank than was prudent in the face of the FDIC limit. Opening a new account for an American who has not maintained a US address is difficult, requiring documentation and a notary's confirmation. Identification information for opening many internet accounts requires inputting either an in-force driver's license or state ID, items many overseas Americans, particularly retirees, may not have.

Add to this, the lure of the interest rates offered for CDs and money market accounts compared with other investing opportunities at present. Not surprising, then, that overseas investors found bank CDs, including Netbank's an attractive place to park savings beyond the FDIC limit.

Whatever Americans may be saving, say, by moving across the border, the bank's failure has now made a bumpy ride for them and other large account holders who thought they were riding safely down Netbank Street.

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