The takeovers always occur on a Friday to give FDIC staff the weekend to complete the transition.
“It’s not an overnight process—it takes several steps before a regulator goes in to close a bank,” said Flora Beal, spokeswoman for Florida’s Office of Financial Regulation. “Every Florida bank that was closed on Friday opened their doors for business on the following Monday.”
The key for consumers: Make sure your accounts meet the guidelines for FDIC coverage.
Martha Prince had a five-figure CD with Crescent Bank and Trust Co. in her home city of Jasper, Ga., until the FDIC seized Crescent in late July.
“One of my [clients] said ‘The feds came in and took over the bank,’ ” recalled the 58-year-old businesswoman. “I had heard they had been having financial troubles. But it didn’t concern me too much because I knew I was insured.”
Higher FDIC coverage limits
The financial regulatory reform bill passed in July permanently raises FDIC coverage maximums from $100,000 to $250,000. Generally, that means the total of all of your accounts in a single bank—checking, savings, certificate of deposit, money market—is insured up to that limit. Joint accounts usually have double the coverage.
Additional coverage is afforded for deposits in retirement accounts such as IRAs. But the rules are complicated so it’s important to investigate them thoroughly and double-check to be certain you’re covered.
Investment accounts that trade in stocks and bonds are not insured even if you opened them through your bank. The FDIC coverage extends only to cash deposits. There also are complicated rules regarding accounts held within living trusts.
Amelia Monsour thought her $143,000 certificate of deposit at IndyMac Bank was fully insured because she held it in a trust and her niece was the beneficiary. That was before the coverage maximum was raised to $250,000—but Monsour believed that, as with many joint accounts, she had double the standard $100,000 protection because her niece was named in the trust.
Then IndyMac failed in July 2008, and Monsour learned that FDIC coverage didn’t apply when nieces and nephews were named as trust beneficiaries, meaning Monsour’s account was entitled to just $100,000 of coverage. In an instant, the Hollywood, Calif. resident was out $43,000.
“It was such a shock,” said Monsour, 85, a part-time travel agent who said the CD was the bulk of her nest egg. “I got a letter from the bank saying that was the law and there was nothing they could do.”
Her story has a happy ending—the financial reform act signed into law in July backdated the higher FDIC coverage limit to January 2008, meaning the accounts of Monsour and thousands of other IndyMac customers could be restored in full. But she feels it’s a stern lesson to other consumers to double-check the advice they get from bank employees.
“About 10 days ago they sent me the rest of the money,” said Monsour. “I never really thought I’d get it back.”
Another IndyMac depositor, Agnes Huff, 57, nearly lost $55,000.
“Just the week before the bank failed I spent an hour on the phone with them and they told me I was fully covered,” said Huff, who owns a public relations firm in Los Angeles. She also received a payout in July but since the IndyMac failure has changed the way she banks. “I now feel that the best way we can protect ourselves is to never have more than $250,000 in any institution, no matter what they say or how attractive an interest rate is.”
Valuable online tools
The FDIC offers an online tool, the Electronic Deposit Insurance Estimator, as a convenient way for depositors to check their coverage.
Chris Carey is an investigative business journalist who now heads BailoutSleuth.com, a website that tracks how banks use federal bailout funds and also keeps an eye on failing financial institutions. Consumers who want to be proactive in keeping tabs on their banks’ health may want to review quarterly and annual reports, looking for their banks’ exposure to mortgage loans and commercial real estate development, he said.
And while the FDIC does not publicly name troubled banks for fear of creating a downward spiral, it does publish on its website—under the “Industry Analysis” tab—enforcement actions like the cease-and-desist letters that serve as warnings from regulators to banks. Consumers are free to read those letters as well as consent orders and other agreements between banks and regulators.
“It’s safe to say, banks that get cease-and-desist orders aren’t necessarily heading for failure, but all banks that have failed likely have received cease-and-desist orders first,” said Carey.
He also recommends BankTracker. The website’s easy-to-use search function pulls up financial data, including “troubled assets” information, for banks nationwide.
Melissa Preddy is a freelance writer in Michigan.