Q: Two questions: First, if the bank fails, how much of my deposits are actually covered by the FDIC?
A. G., Manhattan Beach
A: If your federally insured bank fails, the Federal Deposit Insurance Corporation seeks to keep your money safe. Specifically, the FDIC insures up to $250,000 per depositor, per institution, which covers deposit accounts as well as other official items (such as cashier’s checks and money orders). If you have a question, ask the bank if it is the kind of account that is insured. Also, confirm that your funds are in a federally insured institution. If the bank is federally insured, it should have the FDIC logo on its website. In addition, the online link referenced at the end of this column is instructive.
The FDIC insurance has worked. In 2023, for example, a number of banks sadly failed: Signature Bank (New York), Citizens Bank (Iowa) and Silicon Valley Bank (California). Research indicates none of the insured deposits were lost.
Q: Next, how does it work, how does the FDIC protect me if the bank goes under?
A.G., Manhattan Beach
A: When a bank actually fails — which means it loses the ability to pay back debts, or to return deposits to its customers — a bank regulator closes the institution. The FDIC comes forward to protect customer funds in two basic ways: (1) Paying or providing access to funds to the impacted customers, up to the insurance limit, and (2) taking over control of the assets and the debts of the bank. The FDIC in effect becomes the “receiver” of the bank that has failed. Its tasks include selling or collecting assets, settling debts, and managing the insured deposits.
One additional goal, if possible, is for the FDIC to arrange for a healthy bank to acquire the failed bank.
Online resource: The following link has useful information that explains FDIC insurance, including how it works, what is covered, and what is not covered. You may well find this link of value: https://www.fdic.gov/resources/deposit-insurance/understanding-deposit-insurance
Ron Sokol has been a practicing attorney for more than 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.