What Should I Do When My Bank Fails?

Facts For Depositors When A Bank Fails

The former head of the FDIC has predicted that up to 500 banks will fail this year and the FDIC has 305 banks on it Problem Bank List. The average depositor usually has no way to determine if his bank will fail.  Given these circumstances, it is important to know what to do if your bank fails.

Most depositors are covered by FDIC insurance.  The FDIC was created as an independent federal agency in 1933 to protect bank depositors and thereby promote confidence and stability in the banking system.  There has never been a loss to a customer who had his deposits insured by the FDIC.

The following important facts for depositors are provided by the FDIC, in the event that your banking institution fails:

What is a bank failure?
A bank failure is the closing of a bank by a federal or state banking regulatory agency. Generally, a bank is closed when it is unable to meet its obligations to depositors and others.  The term “insured bank” means a bank insured by FDIC, including banks chartered by the federal government as well as most banks chartered by the state governments. An insured bank must display an official FDIC sign at each teller window.

What is FDIC’s role in a bank failure?
In the event of a bank failure, the FDIC acts in two capacities. First, as the insurer of the bank’s deposits, the FDIC pays insurance to the depositors up to the insurance limit. Second, the FDIC, as the “Receiver” of the failed bank, assumes the task of selling/collecting the assets of the failed bank and settling its debts, including claims for deposits in excess of the insured limit.

What is the purpose of FDIC deposit insurance?
The FDIC protects depositors’ funds in the unlikely event of the financial failure of their bank or savings institution. FDIC deposit insurance covers the balance of each depositor’s account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank’s closing.

What is the FDIC insurance amount?
The basic insurance amount is $250,000 per depositor, per insured bank. This includes principal and accrued interest up to a total of $250,000. The $250,000 amount applies to all depositors of an insured bank.

Deposits in separate branches of an insured bank are not separately insured. Deposits in one insured bank are insured separately from deposits in another insured bank.

Deposits maintained in different categories of legal ownership at the same bank can be separately insured. Therefore, it is possible to have deposits of more than $250,000 at one insured bank and still be fully insured.

What does FDIC deposit insurance cover?
FDIC insurance covers deposits received at an insured bank. Types of deposit products include checking, NOW, and savings accounts, money market deposit accounts (MMDA), and time deposits such as certificates of deposit (CDs).

How am I notified when my bank has been closed?
The FDIC notifies each depositor in writing using the depositor’s address on record with the bank. This notification is mailed immediately after the bank closes.

When the failed bank is acquired by another bank; the assuming bank also notifies the depositors. This notification usually is mailed with the first bank statement after the assumption.