Bank Closings 2009: 106 and Counting
A total of 106 banks in the United States have failed this year as of October 23 and experts forecast some 400 more struggling banks will likely follow them in the next several years. According to the Federal Deposit Insurance Commission (FDIC) the current closings have cost it about $25 billion in payments to depositors and other debtors. This amount is expected to increase over the next four years to an estimated $100 billion thanks to anticipated bank closings.
The causes for the closures are really no surprise. Delinquent loans, relaxed credit, high unemployment, and the housing bust all contributed and proved to be too much for these banks to handle all at once. And, while the FDIC appears to be managing the bank failures well, its Chairwoman Sheila Bair said its insurance fund probably won’t be back in the black for at least another three years due to the ongoing closures. 
To put this sad situation in perspective, the last time we’ve seen numbers like these was in 1992 during the savings-and-loan calamity. That year 120 banks collapsed as that financial emergency was abating. Three years before, in 1989, 534 banks failed at the height of the savings and loan meltdown. In case you are wondering, 11,000 of 25,000 banks in the United States failed between 1929 and 1933 during the Great Depression. 
No part of the country has been spared in our Great Recession of 2009. Banks of all sizes in urban and rural areas across the country have closed their doors this year. But some places have been harder than others as this expanding list of failed banks documents: http://www.fdic.gov/bank/individual/failed/banklist.html
Bank Closure Process
Each failed bank customer receives a mailed notification from the FDIC immediately upon their bank’s closure. It will either state that their account has been purchased by another bank or that the FDIC will send them a check in the mail for their account’s balance. In either case, virtually all banks and their deposits are backed by the FDIC and each of these accounts is insured for up to $250,000.
Strategies for Insuring Your Money
While deposits in separate branches of an FDIC member bank are not separately insured, deposits maintained in different categories of legal ownership at the same bank are each insured for up to $250,000. These categories include checking, NOW, savings accounts, money market deposit accounts (MMDA), and time deposits such as certificates of deposit (CDs).
Another strategy for those with more than $250,000 to protect is to deposit their money in different banks. This would cover up to $250,000 for each separate bank account. For more information on this topic the FDIC offers a brochure at www.fdic.gov/deposit/deposits/insured
Bank Customer Alerts
Often a failed bank is acquired by another bank. When this happens, the acquiring bank notifies the failed bank’s depositors that it has purchased their accounts from their former bank. Their new bank tells depositors how to continue banking with it and this message is usually mailed with the next bank statement. The depositor then has the option of taking his or her business to another bank.
However, if another bank does not acquire the failed bank, the FDIC then settles all the bank’s debts, including distribution of insured deposits to its former customers. Federal law requires the FDIC to make these payments “as soon as possible” following a bank’s closing. Its stated goal is to make deposit insurance payments within two business day of a bank failure. Sometimes this is not possible, since some bank failures are more complex than others. Once someone gets this check, he or she can then open an account with any bank they chose. To help affected bank customers get answers to questions, the FDIC provides a list of contacts for all failed banks at http://www2.fdic.gov/drrip/cs/index.asp/
Obama to the Rescue
In an effort to save at least some of the at risk banks from failing, the Obama administration unveiled a plan in October that would provide low-interest loans to small banks if they make more loans to small businesses. Lenders in the hardest-hit areas are given even cheaper money to lend small businesses. This program is paid from the Federal government’s $700 billion financial bailout fund.