What happens to my account when a bank fails?

[Stone_Cold_Sisko]

Simple question. With banks in trouble, and gov't scrambling to bail them out, and maybe this is an obvious question I should know...

Let's say I have a bank account with Citibank or whomever, lets say I have $20,000 in the in that account. Bank goes under. Lets say they're not bailed out.

What happens to my account and my $20,000?

 

[TheMasterOfOrion]

Worst case scenario you end up with absolutely nothing but I doubt that would happen since there would be too much public anger and there would be a sudden massive loss of investment confidence if major banks fail. Only a fool of a leader would allow it to go into a runaway train like Zimbabwe and its possible this is the kind of 1930s style nightmare scenario that might have happened when Lehman collapsed. However there are still some smart political leaders in America and it forced the Fed to come in and sell this $700billion Guarantee for bank saving deposits. Europe faced a similar nightmare and the British savers were lured into foreign banks like Iceland. The UK bailout was smaller which I think means you couldn't get all your $20,000 back but there was some deal between the British and Icelandic govs where you could apply in letter to get 10 G out of 20G's back. The Japanese also faced a similar banking crisis back in the 90s, they kinda solved it but it left them with a stagnant economy for over a decade and with interest rates stuck near zero the country is still plagued by growth problems.

 

[Scout101]

why wouldn't the FDIC cover that?

 

[TheMasterOfOrion]

why wouldn't the FDIC cover that?

Well if there's a Zimbabwe style nightmare scenario such as currency is put under big pressure then FDIC will be unable to cover the losses without serious consequences like hyper inflation. If it is allowed go out of control and GDP drops and unemployment keeps rising there will be a choice for people behind the FDIC: cut your losses and hurt the feelings of many savers and stock market gamblers or turn your currency into a weimar style republic
That said I am confident the system will turn around, it might take a year or so but it will happen since there are still some smart political leaders in America.

 

[John Picard]

Master of Orion is talking out of his ass. If you're with the (idiot) major league banks, the ones that didn't lend responsibly like credit unions and small town banks, then you have reason for concern. Anyway, a very small (very, very small) number of banks are NOT FDIC insured; however, the largest percentage are, so you would get every single penny back from the FDIC. The insurance limit was raised from $100,000 to $250,000 in the wake of the bailout fiasco.

Don't you people read any of the paperwork from financial transactions?

 

[Gertch]

Don't you people read any of the paperwork from financial transactions?

Have you ever tried to read that 'line' under where you sign a check? That's what it's like to read those financial documents. Sort of like the EULA while installing software - just another button to click.

 

[TheMasterOfOrion]

John Picard is spewing filthy bullshit across your screen.
(I said something about Abortion or Iraq many moons ago and ever since Picard has me and many other 'liberals' in his crosshairs)

Nightmare scenarios do happen, I said they are unlikely but unfortunately they still do happen. Currencies can crash and I'm not talking about Banana Republics even in modern Western society they crash much like what happened to the Icelandic Krona in 08. I'm not sure about the British-Icelandic insurance plan, I know some people got money back but I also know many were blocked from withdrawing their cash..perhaps somebody from the UK can provide a little more info on this?
IMO it doesn't matter if the FDIC's guarantee is $5bucks or $5 Trillion once the currency goes on a serious downward run its hard to correct. People in America get too arrogant about the banking system, it happened in Mexico and other South American countries not so long ago where the government put a limit on people only being able to withdraw $900 US dollars per month because the national currency was in danger of going straight down the toilet.

Y2K had some tell tale signs of a looming cloud, the fact people were dumping the US Dollar and hoarding commodities like Gold is not something we should be so proud of.

 

[the 4th hanson bro]

Master of Orion is talking out of his ass.

John Picard is spewing filthy bullshit across your screen.

Now that that's been established, let's keep it on topic,eh?

 

[trekkerguy]

I'm trying to figure out what the debate is here.

People choose to save/use FDIC insured banks for the safety
incase something happens to that bank you get your money
back. So... as long as your bank is FDIC insured you would
get your $20,000 back. If not, you may be screwed.

 

[DeeEss57]

Simple question. With banks in trouble, and gov't scrambling to bail them out, and maybe this is an obvious question I should know...

Let's say I have a bank account with Citibank or whomever, lets say I have $20,000 in the in that account. Bank goes under. Lets say they're not bailed out.

What happens to my account and my $20,000?

You wouldn't have to even ask this question if you belonged to a credit union. They're not there to make money off you and they'll be there long after all the big banks go tits up. But, even if some catastrophe should befall them, your money is still protected by the FDIC.


DES
proud member of a credit union for more than 20 years

 

[trekkerguy]

^^^ Love my Credit Union. Where I got my car loan and have not had
any issues with them while almost everyone I know gets some kind of
crap service from there regular commercial banks on a regular basis.

 

[Non Sync]

As long as your money is in a regular checking or savings account, you are covered by the FDIC.

Other accounts may or may not be covered.

 

[Mallory]

^ What he said. And in most cases the government takes over during the night and the bank is open for business the next day, so not only is your money insured there's no interruption in service either.

 

[Noname Given]

Simple question. With banks in trouble, and gov't scrambling to bail them out, and maybe this is an obvious question I should know...

Let's say I have a bank account with Citibank or whomever, lets say I have $20,000 in the in that account. Bank goes under. Lets say they're not bailed out.

What happens to my account and my $20,000?

The FDIC insures any account with $100,000.00 normally,($250,000.00 with a new rule passed by Congress but that may go away one day). If you have more than $100,000.00 you have a chane you'd loose the amount over $100,000.00

All major bank are FDIC insured, and FYI the FDIC was stared by FDR as part of the 'new deal' during the 'Great Depression' so that 'bank runs' (which happened from 1929 - 1931 wouldn't happen).

So, with $20,000.00 you're covered. That's why I find people who (when an FDIC insured institution 'fails') rush to line up and get their money out interesting. They obviously never cared enough to check on the policies of the bank they put their money in.

 

[Crewman47]

Excuse my ignorance here but I've never really understood how the banking system really works. I mean I know they do have vaults which will hold actual currency but aren't all currency transactions done by computer? You're money goes in by computer and mostly gets taken out by computer. Only in certain cases are you actually taking physical cash for certain things through ATM's.

What is it really that's at risk, figures in the computer or cash in the vault?

 

[TheMasterOfOrion]

All major bank are FDIC insured, and FYI the FDIC was stared by FDR as part of the 'new deal' during the 'Great Depression' so that 'bank runs' (which happened from 1929 - 1931 wouldn't happen).

I think it should also be noted FDR was not a major supporter, President Roosevelt was schooled in banking and he did not like an insurance system which would reward bankers for their bad behavior. However he knew during the crisis of the Great Depression it was more important to restore confidence in the system than start hunting for those who may have caused this.

What is it really that's at risk, figures in the computer or cash in the vault?

Economics isn't an exact science people can look at the numbers and say the banks are bloated and ready to drop. Economists can look at graphs and say oil is a bubble about to pop, but when exactly something pops or suddenly drops is not a mathematical incident but something triggered by emotion and something triggered by investor panic in the market. What's really at risk today is confidence, when banking capital takes a dive it puts at risk the credibility and integrity of the banking system

 

[RobertVA]

Excuse my ignorance here but I've never really understood how the banking system really works. I mean I know they do have vaults which will hold actual currency but aren't all currency transactions done by computer? You're money goes in by computer and mostly gets taken out by computer. Only in certain cases are you actually taking physical cash for certain things through ATM's.

What is it really that's at risk, figures in the computer or cash in the vault?

Most of the "money" in the US economy is nothing more than bits in an accounting database. It's "printed" when a bank makes a loans and gets shifted around from account to account as people and companies pay for goods and services. It evaporates when someone makes a payment on a loan.

The bank is allowed loans totaling a multiple of the deposits (accounts like CDs, checking and savings) a small percentage of which is actual cash in teller trays or vaults. That multiple is adjusted by the federal reserve to adjust the amount of money in circulation. As with other commodities, the price (what a dollar will buy) fluctuates with the available supply.

When a large number of creditors default on inadequately secured loans the bank isn't allowed to make more loans. Since the bank has ongoing expenses for salaries, real estate (administrative offices, processing facilities AND branches), IT operations and interest on deposits; the lack of interest revenue starts causing problems.

 

[zephramc]

Simple question. With banks in trouble, and gov't scrambling to bail them out, and maybe this is an obvious question I should know...

Let's say I have a bank account with Citibank or whomever, lets say I have $20,000 in the in that account. Bank goes under. Lets say they're not bailed out.

What happens to my account and my $20,000?

You wouldn't have to even ask this question if you belonged to a credit union. They're not there to make money off you and they'll be there long after all the big banks go tits up. But, even if some catastrophe should befall them, your money is still protected by the FDIC.


DES
proud member of a credit union for more than 20 years

I'm not trying to pick on you DeeEss57, but your statement is somewhat humorous in light of this article from the Washington Post.

The federal government yesterday expanded its bailout to another vulnerable sector, saying it will inject $1 billion into a nonprofit company that provides banking services to the credit union industry.

The government is going to bailout an entity known as the US Central Corporate Federal Credit Union. It seems many credit unions invest their funds in the US Central... (Jesus I'm not going to continue writing this) in the USCCFCU. The USCCFCU has been investing it's money in... take a wild guess... mortgage backed bonds.

In regard to the OT, barring the collapse of the banking system and/or the dollar, chances are you will be able to recover your $20,000 from the FDIC probably by the next business day.

 

[nx1701g]

Believe it or not this is the topic of what we studied in my Money and Banking class this morning.

Through Federal law all commercial banks and mutual savings banks (with a few exceptions) are required to participate in the FDIC Bank Insurance Fund. Through it each depositor is guaranteed up to $100,000USD of protection per account should the bank fail. If your account contains an amount below $100,000 you are fine, if the account has more than $100,000 you can lose anything above the $100,000. There are similar insurance funds for other depository institutions as well.