I remember when the IndyMac Bank failure in California happened. I usually consider myself a pretty calm person, but the bank closure really freaked me out. I remember coming home and grabbing a checkbook and going to the bank to pull out a certain amount of money. I know better, but I just wanted to feel safe.
Several months have passed, and you really don’t hear of too many bank closures. However, did you know that as of today, 34 federally insured financial institutions have failed? That’s a lot of bank closures! Do you know how many banks failed in 2007? Three. Only three banks failed just two years ago. Already, 34 bank closures trumps the 2008 bank failure total of 25.
The most recent bank failure is also the largest. BankUnited, which is headquartered out of Coral Gables, has been sold to an investor group for $900 million. They had over $13 billion in assets. A bank’s assets include, among other things, their loan portfolio and real estate holdings.
Despite what you may think, money you have deposited within a bank is not a bank’s asset – it is a liability to them. Why? Because they have to give you that amount of money on demand.
What happens when a bank closes? Typically, the FDIC will come in on a Friday and re-open the bank the next Monday. Typical bank failures are seamless because normally there is a buyer who will assume the new bank. Normally, your debit and ATM cards will work if there is a buyer – it is when the failed bank does not have a buyer that you are sort of inconvenienced.
If there is no buyer, then the FDIC freezes all activity running through the bank. All your checks outstanding will be returned stamped “bank closed” and you won’t be able to access your money. However, the FDIC has a list of all depositors and their addresses and normally issues checks in the amount of your insured deposits the Monday following the closure. Uninsured deposits could be lost in their entirety, although the FDIC makes all efforts to get as much money back from troubled assets of the bank to get back the money of uninsured depositors.
It is very important to ensure that your money is adequately insured. Don’t go above the FDIC insured limits of $250,000. President Obama just signed an act which allows the FDIC insurance limits to be $250,000 per depositor until 2013. If you want to calculate what you have that is insured, click here.
We live in some tumultuous times. It’s important to pay attention to what’s going on- especially with your financial institution. Don’t hold all your money as cash – even though you don’t think it’s safe in the bank. If you are robbed or have a fire, that money is not insured. Most homeowner’s policies only cover cash up to $500. As long as your bank account doesn’t extend the FDIC insured limits, the government will make sure you don’t lose a penny.