FDIC: Savings' saving net
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What happens if your bank fails?

It can be unsettling when your bank fails. No advance notice is given to the public before the institution is closed because officials don't want to create a run on the bank. If you were a Washington Mutual customer, you knew it was in trouble because it was in the news. But sometimes it's not nearly so obvious.

See 2009 list of failed banks and 2010 list of failed banks.

Customers can have a complicated relationship with their bank. Checking, savings, loans, mortgages, safe deposit boxes and all the other services banks provide become a routine part of our lives. A disruption in service can be more than a hassle. It can mean late payments, running out of cash or no access to important documents.

The regulator of a failed bank usually names the Federal Deposit Insurance Corp., or FDIC, as receiver. In addition to ensuring customers receive all of their insured deposits, the agency strives to make the closing as hassle-free as possible.

With the help of information culled from the FDIC Web site and an interview with FDIC spokesman David Barr, we've assembled some information about what usually happens when a bank fails. Included are most of the services that would affect the typical retail consumer. Of course, the various descriptions won't fit every bank failure, and sometimes services such as ATMs won't work when they should or loans won't be seamlessly transferred.

When a bank or thrift fails there are three common scenarios:
  1. Another institution acquires the complete institution.
  2. The insured deposits are acquired but the uninsured deposits and the loans are left behind with the FDIC.
  3. There is no buyer and the FDIC runs the bank until it can find a buyer(s).

For the most part, a failed bank is closed on a Friday. Often, the institution reopens under the acquirer's name -- or under the FDIC -- by Monday, although occasionally it happens sooner and the bank may open on a Saturday. In the case of the JP Morgan Chase takeover of Washington Mutual, WaMu's branches never closed. There are times when the name change doesn't take place right away, even though the acquiring institution has taken over.

The following information applies to the various bank closing situations mentioned above. If there is a difference between what would happen when a bank is acquired versus what happens if the FDIC has to run the bank, it will be noted.

Types of bank services affected
1.ATM/debit cards10.Dormant accounts
2.Automatic payments/escrows11.IRAs
3.Automatic direct deposits/withdrawals12.Loans
4.CD accounts13.Online services
5.Checks14.Overdraft line of credit
6.Deposits15.Night deposit boxes
7.Insured deposits16.Safe deposit boxes
8.Uninsured deposits17.Tax information
9.Brokered deposits18.Trust accounts

1. ATM/debit cards -- You should have access to your funds though an ATM, but transactions during the time the bank is closed may not be posted to your account right away. It's your responsibility to keep track of your transactions.

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"ATMs are taken offline for processing," Barr says. The consumer never knows it. They're taken offline all weekend from the FDIC's standpoint, so if you use the ATM, that money is not being posted or withdrawn from your account. We have to balance the books so that on Monday morning we know exactly how the bank looked when it was closed. While customers can use ATMs over the weekend, technically those transactions won't hit the account until Monday morning."


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