Say a U.S. bank fails, and is taken over the Federal Deposit Insurance Corporation. How long is it before customers can access the funds in their accounts? Are accounts frozen until the dust settles?
If it’s a complete failure, the FDIC tries to seize the bank on a Friday and send checks out over the weekend.
Sometimes, the FDIC will seize the bank and sell the accounts to another, more solvent bank. This is what happened with Washington Mutual a few months ago. In that case, there was no disruption for retail customers; Chase took over WaMu’s operations and continued to run everything while they gradually transitioned all the WaMu stuff to Chase’s systems.
There was a thing about it on 60 Minutes (or some similar news magazine show) on Sunday. Basically the FDIC shows up simultaneously to all the banks branches with a team of people - asset management experts, accountants, even IT and facilities people - at night once the last customers have gone home for the day. They then take ownership of everything and start running the bank. From the point of view of the customer, apparently it’s seamless.
Yep. I was involved in several such takeovers for the Resolution Trust Corporation (like FDIC but for Savings and Loans) and we’d all show up at the bank at closing time. For customers whose accounts were covered under a Purchase and Assumption (P&A) - e.g. the WaMU takeover - it was pretty straightforward and they had their money available to them at all times.
If the bank was NOT going P&A, we mailed out checks on Monday for all insured deposits (my task involved helping out with crunching numbers over the weekend and determining what was actually insured - not as easy as it sounds with multiple accounts, trusts, etc.). So those people lost access to their funds for a couple of days, until they could deposit the check in another bank.
It became trickier if the bank had a lot of pooled brokerage accounts (e.g. Merrill Lynch got money from boatloads of people, pooled it, and bought a big-ass CD worth millions) - that money was insured to the brokerage clients. So if ML had a million dollars, they weren’t out 900,000 bucks - we had to find out who the various people were who contributed those million dollars. That took days / weeks to do. So if I had 80,000 in FailingBankNA, and another hundred thou placed in one of those brokerage deposits, I’d get my full 80K from the RTC mailed out that Monday, and a week or three later I’d get my 20,000 from the brokerage house.
I got the impression that the brokerage house would have to make me whole for the 80,000 in that situation, as they’d promised my deposit was FDIC / FSLIC insured.
Usually the bank’s IT people had some involvement. The closing was usually not a complete surprise, and often we’d had numerous go-rounds of preliminary reports of depositors to review beforehand (so the RTC could get a feel for the uninsured deposits). Those were all provided by the bank’s IT people (often an outside servicer who handled multiple banks).
I had 2 banks go under. Both re-opened the next day as branches of the bank that bought the failed bank. We could still use checks from the old bank as long as we still had the checks.