Is My Money Safe? FDIC Answers Questions About What Happens When a Bank Fails.

STATEN ISLAND, N.Y. — After the recent collapse of Signature Bank, President Biden urged the American people to have confidence in the banking system and rest assured that their funds would be there when needed. But when can bankers access their money? And what happens to checks, automatic payments and weekly direct deposits? The Federal Deposit Insurance Corporation (FDIC) is now offering some of those answers.

“No depositor has ever lost a penny of insured deposits since the FDIC was created in 1933,” the agency noted on a webpage that was recently formulated to answer some pressing FAQs after Signature Bank was closed by regulators on Sunday, representing the second massive bank failure in three days. “The FDIC protects depositors’ funds in the unlikely event of the financial failure of their bank or savings institution.”

The closure of the New York-based bank comes after mid-size lender Silicon Valley Bank (SVB) was seized by regulators on Friday. SVB, a well-known backer of start-ups, made some ill-timed financial decisions that left it struggling to meet customer withdrawal requests, the The New York Times reported. As word about SVB’s troubles began to spread, business customers of Signature began calling the bank, asking if their deposits were safe.

So what do you need to know if you have money or loans at one of the shuttered banks? Here’s a look at some of the top questions the FDIC is fielding on their site:

When can I expect to receive my money?

Federal law requires the FDIC to make payments of insured deposits “as soon as possible” upon the failure of an insured institution. While every bank failure is unique, there are standard policies and procedures that the FDIC follows in making deposit insurance payments. It is the FDIC’s goal to make deposit insurance payments within two business day of the failure of the insured institution.

How does a bank closing affect interest accruing on my deposits?

The FDIC’s insurance coverage includes principal and interest through the date of the bank failure up to applicable insurance limit for each deposit. The accrual of interest ceases on all accounts once the bank is closed. If an open bank acquires deposits from the failed bank, the acquiring bank becomes responsible for re-establishing interest rates and beginning the accrual of interest after the date of the failure of the bank. The acquiring bank may change the interest rate on the acquired deposits, but the depositor may withdraw their insured funds without penalty if they chose to do so. If no acquiring bank is found for the deposits, and the FDIC pays the depositors directly for their insured amounts, interest does not accrue past the date of failure.

What happens to my direct deposits if my bank closes?

If the failed bank is acquired, all direct deposits, including Social Security payments, will automatically be re-directed to the deposit accounts at the acquiring bank. If there is no acquiring bank, the FDIC typically attempts to find a nearby bank to take over the direct deposit function temporarily, to make Social Security and other government annuity payments available to the customers. Specific information about any changes in the payment of direct deposits will be made available at the office locations of the failed bank.

What happens to checks and automatic payments that have not cleared an account before my bank is closed?

When the failed bank’s deposits are assumed by an open bank, some or all of the offices typically reopen the next business day, and there is usually no interruption in the processing of checks drawn on the failed bank. An exception to this procedure may include checks that were drawn against a deposit account that has been determined to be uninsured or an account that the deposit insurance determination is pending.

In a payoff, however, any outstanding transactions or checks presented after the bank has closed cannot be paid or charged against the account. The FDIC needs to freeze all deposit accounts at the time the bank is closed to quickly pay the depositors for the insured deposit balances in their accounts. Any outstanding checks or payment requests presented after the bank failure will be returned unpaid and will be marked to indicate that the bank is closed. This does not reflect on your credit standing. However, it is your responsibility to make other funds available to creditors who receive checks that were returned and did not clear your deposit account because of the bank closing.

Can I continue to use my checks and deposit slips at the new bank?

If there is an acquiring bank, it will accept the checks and deposit slips of the failed bank for a short time. You will receive information about new checks and deposit slips from the acquiring bank.

When can I have access to my safe deposit box?

When the failed bank’s deposits are assumed by a healthy bank, the branch offices usually reopen the next business day. At that time, you will have access to your safe deposit boxes. In the event of a depositor payoff, the FDIC will send a letter to you informing you of the closing. The letter will instruct you on how you can remove the contents of your box. Access to the safe deposit boxes is typically granted to the safe deposit holders the next business day after the closure.

If I have more than $250,000 in a closed bank and I am paid $250,000 by the FDIC, what happens to the amount in excess of $250,000?

If for example, a depositor has only a single account with a balance of $255,000, he or she would be paid $250,000 through FDIC insurance and would receive a claim against the estate of the closed bank for the remaining $5,000 which is not insured. The depositor would be given a Receiver’s Certificate as proof of this claim and would receive payments as the assets of the bank are liquidated.

It is possible to have deposits of more than $250,000 at one insured bank and still be fully insured if the deposits are maintained in different categories of legal ownership.

What happens to my loan now that my bank has failed?

Either the FDIC sold your loan at closing or the FDIC has retained it temporarily. In either case, your obligation to pay has not changed. Within a few days after the closure, you will be notified by the FDIC, and by the purchaser, as to where to send future payments. In the case of a delinquent loan, the FDIC will “set off” the loan against the borrower’s deposits (if any) before paying deposit insurance. In the case of a non-delinquent loan, the depositor might elect to “set off” the loan against his/her deposits in order to receive full value for any uninsured funds (i.e., funds in excess of the $250,000 insurance limit). In either case, no “offset” is possible unless the obligations are “mutual” – meaning that the borrower and the depositor must be the same person or legal entity acting in the same legal capacity.