What happens to loans when a bank fails? Some people suggest you do not have to pay your loan once a bank fails. According to FDIC, you are still obligated to pay your loan.
Here is FDIC’s explanation of what happens to bank assets and outstanding loans.
- Prior to a bank’s failure, the FDIC offers some or all of the failing bank’s assets for sale to healthy financial institutions upon the bank’s closing.
- Loans not sold in the initial sale are packaged and offered for sale to the broader financial market, typically within a few months of the bank’s failure.
- Until the FDIC sells your loan, it undertakes the associated servicing responsibilities.
You have a loan with a bank that just failed. The loan could be a car loan or mortgage, business loan or whatever. What if FDIC sells your loan? FDIC’s reply to that question is explained below.
- Holders of loans, including the FDIC, routinely sell performing and non-performing loans in the financial markets.
- If the FDIC sells your loan, either at or subsequent to the time your bank is closed, the FDIC and the new owner will send you a notice of the transaction, with payment mailing instructions.
- The sale does not affect the terms of your loan. The new owner of your loan:
- Must comply with all state and federal laws with respect to the ownership and servicing of your loan, including the Fair Debt Collection Practices Act,
- Is entitled to collect all principal, interest, and other amounts owed, and
- Assumes the receiver’s obligations and commitments.
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.
Bank bailouts and taxpayer bailouts have yielded record bank failures. One must ask, What was the reason for all the bailouts? Who profited the most from all the taxpayer bailouts? How can it be legal to saddle American taxpayers with debt while a specific few line their pockets? Have Americans become lazy and unpatriotic? Reports of angry Americans do not seem to stop or alter continued pocket lining, why?
Bank failures and takeovers have reached record levels in 2010. Here is a list for the last three months of bank failures across America. As of August 20, 2010, we have seen 118 banks fail. In a short 8 months, 118 failed banks. We have four months to go. So Victory1Project is giving away a free iPod to the person who posts a comment on our blog guessing the correct number of bank failures we will have for 2010. See rules below.
Contest Rules: Post a comment on this post guessing what the total bank failures for 2010 will be. Be sure to provide your email so we may contact you if you are the winner. The person who guesses the exact number of bank failures, for 2010, according to the FDIC reports ( see here ) wins a free iPod from Victory1Project. If more than one person guesses the correct number of bank failures, we will provide each with a brand new iPod. The winner(s) will be posted here the first week of January 2011. You MUST have your guess posted on this blog or emailed to us here no later than November 15th 2010 at midnight EST. Contest ends November 20th, 2010. Winner(s) notified the first week of January 2011 here on this blog. Send us your information here.
It appears the Federal Deposit Insurance Corporation (FDIC) is in not only selling securities but, the real estate market as well. Here is a partial list of properties “FDIC” is selling:
715 Stephens Saginaw, Michigan A two unit converted house for
$ 7,500 or best offer
5516 Oldtown Detroit, Michigan A single family residence 3 bedroom 1 bath and 1250 square feet for $ 8,500 or best offer
To see more properties and get particulars on the properties listed here go to FDIC property information here.
The question is, who regulates FDIC in securities trading and in real estate sales? What law provides FDIC the ability to engage in securities and property selling?
Commerce Bank of Southwest Florida failed and on Friday, November 20, 2009 Commerce Bank of Southwest Florida, Fort Myers, FL was closed by the Florida Office of Financial Regulation, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed. One must ask, why? If you are a depositor in a bank and your deposit exceeds the FDIC insured amount, why is there no advanced notice of a failing bank? Is it because you could withdraw your funds and protect your assets?
The official notice states:
All deposit accounts, excluding certain brokered deposits, have been transferred to Central Bank, Stillwater, MN (“assuming institution”) and will be available immediately. On Monday, November 23, 2009, the former Commerce Bank of Southwest Florida location will reopen as a branch of Central Bank.
Your transferred deposits will be separately insured from any accounts you may already have at Central Bank for six months after the failure of Commerce Bank of Southwest Florida. Checks that were drawn on Commerce Bank of Southwest Florida that did not clear before the institution closed will be honored as long as there are sufficient funds in the account. For more information on deposit insurance, you may speak to an FDIC representative by calling 1-800-913-5370 or visit EDIE, the FDIC’s Electronic Deposit Insurance Estimator.
The Automated Teller Machines (ATM) and online service will remain available.
As of Monday, November 23, 2009, you may continue to use the services to which you previously had access, such as safe deposit boxes, night deposit boxes, wire services, etc.
Your checks will be processed as usual. All outstanding checks will be paid against your available balance(s) as if no change had occurred. Your new bank will contact you soon regarding any changes in the terms of your account. If you have a problem with a merchant refusing to accept your check, please contact your branch office. An account representative will clear up any confusion about the validity of your checks.
All interest accrued through Friday, November 20, 2009, will be paid at your same rate. Central Bank will be reviewing rates. You will be notified of any changes.
Your automatic direct deposit(s) and/or automatic withdrawal(s) will be transferred automatically to your new bank. If you have any questions or special requests, you may contact a representative of your assuming institution at your branch office.
If you or your company provided a service or product, leased space, furniture, or equipment to Commerce Bank of Southwest Florida prior to Friday, November 20, 2009 and have not been paid, you may be entitled to a claim against the bank. If you provided a product to or a service for Commerce Bank of Southwest Florida prior to the bank’s failure for which you have not been paid and you have not received communication, please contact:
|Federal Deposit Insurance Corporation
Receiver: Commerce Bank of Southwest Florida
7777 Baymeadows Way West
Jacksonville, FL 32256
Attention: Claims Agent
Please note: There are time limits for filing a claim, your claim must be filed on or before 2/25/2010.
See FDIC’s website here – for more information.
Ten more banks were closed on Friday October 30, 2009.
October 2009 saw 20 banks fail. That makes the total failed banks for 2009 – 116. Consider, 27 banks failed from the year 2000 through 2007 making an average of 3.9 bank failures per year. When TARP was passed by Congress and arm twisting began in Congress to pass massive bank bailout money to selected banks, bank failures skyrocketed in 2008 and 2009.
Was the bank bailout money designed to squeeze out smaller banks by bailing out bigger banks whose CEO just happened to be politically connected? Large bank stock is inching upwards and profits to upper-management through bonuses is becoming a trend. Consider 26 banks failed in 2008 and now 116 in 2009. Makes you wonder if the large banks were allowed to fail, maybe the smaller banks would not have failed, doesn’t it?
Add the following banks to the list of bank failures for 2009:
|North Houston Bank||Houston||TX|
|Madisonville State Bank||Madisonville||TX|
|Citizens National Bank||Teague||TX|
|Park National Bank||Chicago||IL|
|Pacific National Bank||San Francisco||CA|
|California National Bank||Los Angeles||CA|
|San Diego National Bank||San Diego||CA|
|Community Bank of Lemont||Lemont||IL|
|Bank USA, N.A.||Phoenix||AZ|
|First DuPage Bank||Westmont||IL|
If you have investment products, in a bank, your investments are not insured by FDIC according to FDIC. As usual, FDIC waits until Friday to close ten more banks. One might ask, in whose best interest is it to wait until late on a Friday to close a bank?