I am all for learning from new experiences. I seek out new things to get my hands dirty with all the time, but this weekend, I was able to experience one of those things that no one seeks out or ever wants to – bank closure.
Late Friday night while I was thinking about investing (yea really, I did just read I Will Teach You To Be Rich and it’s still fresh in my mind) I got an email from the bank (ShoreBank Direct for the curious) that holds my entire emergency fund. I get regular emails from them saying the interest rate has change (usually down) so this wasn’t unusual until I got an identical email from the FDIC a few seconds later.
The emails said that the bank is closing it’s doors and the FDIC it taking over. They assured me that my deposits were safe and banking would continue as usual.
I didn’t buy that. To be honest, I was pretty nervous about this. Due to a steady decrease in interest rate, I had been planning to abandon ship anyway so I immediately initiated a transfer out of there.
In light of this new hiccup in my finances, I thought I would share a couple things I learned about the FDIC and bank closure, first hand.
Surprisingly, in that same email from the FDIC, I found that they had already found a buyer for the bank and everything had been transitioned over before I even knew the bank was closed!
You see, the FDIC insures just about every bank out there or at least the good ones (banks have to meet certain standards to be FDIC insured), and when a bank goes under, the FDIC is left holding the reins. That’s a lot of responsibility and way too much liability for them, so they line up a buyer for failed banks immediately.
As a consumer, when the FDIC takes over a bank, you are the last to know. This is because they want to reduce “runs” on the bank, and keep it operational. You can actually still continue to use the same online interface you have become familiar with, the same checks and debit cards. You are also still required to pay on loans and debts held against you by the bank.
Just like HR traditions in a big company for hiring and firing, the FDIC has set up ways to make the closing of banks seamless for everyone involved. They usually close banks on Friday, getting back to business on Monday.
If by chance the FDIC doesn’t find a bank to sell the failing bank to, they may operate the bank themselves, as a federally owned bank, for a short time. In the worst case scenario for insured deposits, your funds with the bank will be frozen during this time. Eventually, if no buyer is found and the FDIC decides to stop operating the bank, the FDIC will cut you a check for the amount of money you have with the bank, as long as it is under their insured amount.
Uninsured deposits with a failed bank are a different story. If the bank is sold, the FDIC has to see what money is available to be distributed to those with uninsured deposits. If the bank is never sold, and is closed down, there isn’t much that can be done for your uninsured deposits. If you find yourself with uninsured deposits in a failed bank, that means you had over $100,000 in one bank account and you will be waiting quite some time to see what fate holds for your money.
The most important thing I learned though is that bank failures can come out of no where. We are sort of used to hearing about them because of the financial crisis in 2008, but banks did fail before that, and will continue to fail in the future. You will never be able to predict a banks failure and the best thing you can do to make sure you don’t lose money when a bank fails is observe the limits of the FDIC, diversify your holdings between different banks, and always prepare for the worst so when it comes, it’s no surprise.
Image by zieak br>
Tags: banks, checks, clos, closure, debit cards, debts, doors, email, emergency fund, fdic, fresh in my mind, friday night, hiccup, interest rate, interface, loans, money, new experiences, reins, traditions