5 Things You Should Know If Your Bank Fails

2010 may bring more bank collapses than last year. Here's how to protect your money

Don't panic, you'll get your money. FDIC makes insured funds available to depositors quickly.

If the notion of bank failures sounds very “2009” to you, think again.  Earlier this week, the Federal Deposit Insurance Corporation (FDIC) announced that the number of “problem” banks has reached its highest level since March 1993. According to the FDIC’s recent report, 829 commercial banks are at risk of failure. Through June of this year, 118 banks have failed—and have been taken over by the FDIC. At the current failure rate, more banks are expected to collapse in 2010 than in 2009.

The vast majority of FDIC-insured banks have enough capital to be considered healthy and are well-managed. So, the statistical likelihood of your bank failing is low. Still, here are five things the FDIC wants you to know:

1) Don’t panic. Federal laws and FDIC practices are there to protect you. Federal law requires the FDIC to pay insured deposits — all the money determined by the FDIC to be within the federal insurance limits — “as soon as possible” after an insured institution fails. In most cases, the FDIC makes insured funds available to depositors quickly, usually on the first business day after the bank is closed.

“While news that your bank has failed can be scary, federal law makes it clear that deposits within the federal insurance limits are completely safe,” said Janet Kincaid, an FDIC Regional Ombudsman. “In addition, the FDIC works diligently — even before the bank is closed — to ensure that the event goes smoothly.” She noted that the FDIC provides a special toll-free number consumers can call to speak with an agency representative, and that the FDIC’s Web site www.fdic.gov also provides answers to frequently asked questions. “If you hear that your bank has failed, there is absolutely no need to run down to the bank or do anything other than to become familiar with how the FDIC will help you, as a bank customer, through the process,” Kincaid said.

2) Most of the time, the FDIC is able to find a buyer for the failed institution. In this case, offices of the failed bank reopen under the name of the acquiring institution, usually by the next business day, and depositors automatically become customers of the new bank. “Basically, the only immediate change you will see is a different name on the door,” said Kincaid. “Until you’re notified otherwise, you can continue to use your checks, online banking, and debit and ATM cards. You should continue to make your payments on any outstanding loans, just like you did in the past. And don’t worry about the contents of the safe deposit box you have at the bank. You can access the box, just as you would on any other business day.”

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