In January 2010 alone, 15 banks were seized by the Federal Deposit Insurance Corporation, or FDIC. When a bank doesn’t have enough cash to continue operating, the FDIC will step in and find a buyer or shut it down. What if this happens to your bank?
When Your Bank Is Sold
When a bank fails, the FDIC usually finds a buyer to take over all the bank branches, usually over a weekend, and sometimes literally overnight, and business goes on as before without interruption. In this case, your first step is to evaluate your new bank and decide whether you want to stick with it. It saves a lot of paperwork if you don’t have to move all your accounts, but the new bank may not be your best choice.
Investigate the financial health of the acquiring bank as a starting point. Banks are rated by agencies such as Standard & Poors. If the new bank is heavily leveraged, you could end up going through another closure in the future, a mess you probably want to avoid. There is a free bank-rating tool you can use at TheStreet.com. Also look at the new bank’s history of small business lending. It may be a local, small community bank with a track record of close relationships with the business community, or a large national bank with far-off headquarters. Evaluate whether you think the new bank will work with you if you want a business loan in the future.
Other area banks may make special new-customer offers in an effort to lure customers of the failed bank. Don’t be dazzled by these as you evaluate the financial health of the acquring bank. However, if another bank is financially sound and making a good offer, switching may be advisable; you may find free checking, higher interest rates, or other perks at another bank.
When Your Bank Is Closed Down
If the FDIC cannot find a buyer for the bank, it will freeze all deposit accounts and quickly pay depositors. The FDIC insures up to $250,000 per depositor in single or joint accounts, revocable trusts, or retirement account deposits. However, retirement accounts that are invested in instruments such as mutual funds, bonds, stocks, or annuities are not FDIC insured, and you may lose your money.
Federal law requires the FDIC to make payments of insured deposits “as soon as possible” upon the failure of an insured institution. For any amount above the insured limit, you would receive a claim against the estate of the closed bank and receive payments as the assets of the bank are liquidated. As soon as the bank is closed, ATM and debit cards will not be active and checks that haven’t cleared the system will be returned and stamped “bank closed.” You will receive your final statement so you can see which checks haven’t cleared so you can contact those merchants to make other arrangements.
If your bank is closed, you’ll have no choice but to move your accounts to a new bank. Shop around in your neighborhood and compare services, interest rates, and features to find the best one for you. If you are contemplating obtaining a business loan or have one already, evaluate the small business lending track record of each institution to see which might be the best connection for future borrowing.
Business reporter Carol Tice contributes to several national and regional business publications.