What happens to my money if my bank fails?
The bank customer will usually find out their bank failed when they get a letter stating that another bank has taken over the accounts. FDIC does not give advance notice to the public when a financial institution is closed. If all of the accounts are fully FDIC insured the bank customer loses nothing and access to all money is usually immediate. If you have uninsured deposits, life is more difficult.
When a bank fails and FDIC is appointed as receiver, FDIC will sell the institution’s assets to pay depositors and creditors. If any excess cash is generated – after the administrative expenses of the FDIC receiver are taken care of – then the receiver may declare and distribute a dividend to claimants. First in line to claim any money are the remaining uninsured deposits, followed by institution liabilities, subordinated obligations, and then obligations to shareholders.
When Do Uninsured Depositors Get Paid?
Uninsured depositors may get a special Advance Dividend usually within 30 days after the bank closes. Every quarter FDIC, as the receiver, will determine the net proceeds available from converting failed bank assets and, if money’s available, pay out a Traditional Dividend until all the money’s gone.
21 July 2010 FDIC PRESS RELEASE.
The Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law today permanently raised the maximum deposit insurance amount to $250,000. In addition, the Act made this increase retroactive to January 1, 2008.
The provision making the law retroactive means that the $250,000 deposit insurance amount applies to banks that failed between January 1 and October 3, 2008.