TheStreet's Philip van Doorn notes that NetBank's failure is proof that ratings matter:

No depositor ever wants to be in the position of hoping to get money back after a bank failure. In the case of NetBank (formerly a unit of NetBank (NTBK) , TheStreet.com's financial strength ratings provided five years of warnings, with ratings of D (weak financial strength) or below. NetBank's rating was downgraded to D- in December 2006, E (very weak) in March 2007 and finally E- in June 2007.

After NetBank's deal to be acquired by EverBank fell through, the Office of Thrift Supervision closed down NetBank on Friday, and named the Federal Deposit Insurance Corp. as receiver. The FDIC then issued a statement saying that NetBank's insured deposits had been acquired by ING Bank, FSB (a unit of ING Group).

ING Bank did not acquire NetBank's $109 million in deposit accounts that exceeded FDIC insurance limits. Customers with uninsured deposits will receive immediate payment of 50% of their uninsured balances. These customers will become creditors to the receivership for the remaining 50%. This means that $54.5 million in deposits may never be recovered by these customers.

More:

You could face major risk if the bank servicing your mortgage fails. If you got your mortgage from a bank, chances are the loan was sold to Fannie Mae or Freddie Mac, or was securitized and sold to another investor. This process was probably invisible to you, and your loan may still be serviced by the original bank.

If the bank servicing your mortgage were to fail, the owner of the loan would need to take over the servicing or find another servicer. If your mortgage is escrowed for taxes and insurance and the troubled bank fails to deliver the loan files to the new servicer quickly, the insurance premium and property tax payments that your bank normally makes could be made late, or not at all. Freddie Mac recently faced this problem, when American Home Mortgage Investment Corp. (a nonbank loan servicer) went bankrupt and failed to quickly deliver loan files to Freddie Mac.

It can only help to monitor the rating of the bank or thrift servicing your mortgage. If the institution has a very low rating, contact them. Make sure they are paying any insurance premiums and property taxes on time. You should try to find out who ultimately holds the mortgage and who to contact if the servicing is transferred to another institution.

Read the full article here.

Question: Does financial regulation encourage such monitoring? Why do we tend to see more monitoring by the private sector in the bond industry than among banks?