The Federal Deposit Insurance Corporation (FDIC) has gotten a lot of press lately due to the recession and their takeover of banks that have failed. Usually these takeovers are just to immediately transition from the failed institution to an institution that has agreed to assume the assets of the failed bank.
total deposits of the most recent failed bank.
On July 31, 2009 Mutual Bank, Harvey, Illinois was closed, the FDIC entered into a purchase and assumption agreement with United Central Bank, to assume all of the deposits at Mutual Bank. This helps to protect the consumers and ensures the bank doesn’t just disappear. Had the FDIC not reached this agreement with United Central Bank they could have been on the hook for all $1.6 billion in total deposits, through this deal it only cost them $696 million. Each time they close a bank and broker one of these deals they are lessening the amount of money their Deposit Insurance Fund will have to pay out.
The following video details the process they went through when closing Heritage Community Bank:
Failed banks so far in 2009
Since the start of 2009 the FDIC has closed down and taken over 69 total banking institutions. Comparatively 26 were closed in 2008, only 3 in 2007, and in 2006 & 2005 there were 0. You can see the toll this recession has taken on the banking industry. I personally believe that most of these failures were failures in management and oversight and that is what the FDIC was intended to protect depositors against, I am sure there are plenty of people out there who are glad they exist.
States have had a bank fail
The following pie chart breaks down the 2009 and 2008 failures by state, Georgia has had the most failures at 21 followed by Illinois with 14 and California with 13.
$179,000 total amount of uninsured deposits at Beverly Hills Bank
On April 24, 2009 the FDIC took over the failed First Bank of Beverly Hills and shut their doors forever. Of the $1 billion in deposits at the bank only $179,000 were uninsured by the FDIC. As opposed to a sale/assumption this particular bank was closed and customers were MAILED checks for the amount of their insured deposits. Now that hurts, I am sorry sir you can have your money, but it will be 3-7 days. I wonder if I should keep more cash around the house.
$250,000 the maximum amount the FDIC insures
Through December 31, 2013 the FDIC is guaranteeing up to $250,000 in deposits at any one institution. Keep in mind that this is not per account, but is per institution. If you have six accounts at one bank the cumulative total cannot exceed $250,000. If you are at $251,000 and the bank is closed by the FDIC, you are only going to get mailed a check for the $250,000. Another thing to keep in mind is the insurance amount is set to drop back down to $100,000 on January 1, 2014.