Bank Failure FAQs

Detective Krum

We have received questions about the Federal Deposit Insurance Corporation (FDIC) and deposits.  The FAQ section below is from FDIC. The question not asked in the FDIC FAQ section is what if FDIC goes bankrupt which reports suggest FDIC is already bankrupt.

FDIC Deposit fund had negative $8.2B balance in Q3 . The Treasury has their back. But let’s not forget – The FDIC does not have a legal “full faith and credit” guarantee from the US Federal Government and Treasury.

It has a “sense of Congress” resolution, but not a formal, legally-binding guarantee.

Credit Unions have a similar Insurance program. Keep in mind, the deposit money in banks does not belong to the banks, it is your money.  Banks use your money to leverage their investments. If they make poor investment decisions, it can cost you.

FDIC deposits over the $ 250,000 mark are lost. If your company, business or you personally deposit more than $ 250,000 in one bank in one account, you are always at risk of loosing anything over the $ 250,000.

FDIC Frequently Asked Questions

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. This deals with the failure of “insured banks.” 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. (Another words, FDIC takes your money over $250,000 and sells your money to the highest bidder and FDIC takes it “cut” from the sale.  One other point assets can and do many times include real estate. If your home is worth more than the insured limit, you could be forced to pay the difference of a failed bank’s mortgage asset.)

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 standard insurance amount is $250,000 per depositor, per insured bank, for each ownership category. This includes principal and accrued interest and 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. (Krum’s Note: Notice the keyword here is different. That means more than one account in a variety of names)

Therefore, it is possible to have deposits of more than $250,000 at one insured bank and still be fully insured.

Who does the FDIC insure?
Any person or entity can have FDIC insurance on a deposit. A depositor does not have to be a citizen, or even a resident of the United States. FDIC insurance only protects depositors, although some depositors may also be creditors or shareholders of an insured bank.

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).

What is the source of funding used by the FDIC to pay insured depositors of a failed bank? The FDIC’s deposit insurance fund consists of premiums already paid by insured banks and interest earnings on its investment portfolio of U.S. Treasury securities. No federal or state tax revenues are involved. (Krum’s Note: Look at Foreign Investment in the US and the portfolio here. Then check out  this pdf file showing what China holds in America here .)

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.

Every effort also is made to inform the public through the news media, town meetings, and notices posted at the bank.