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Well, I just found out my bank is being shutdown by the FDIC


Guest kawikaho
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Guest kawikaho

I was wondering about that a year ago when lots of these banks were being shutdown.  I don't have nearly the amount covered by the FDIC limits at that bank, so I'm ok.  However, it's still an interesting question.  Based on what I've read before, I think banks can have their own separate private insurance to cover the rest of the deposits above the FDIC limit.  And, don't quote me, but I believe the FDIC limits are discretionary.  If someone knows, please chime in on this one.  I should contact the FDIC for clarification. 

 

What's interesting is Bankrate, at the time I looked a year and a half ago, rated this bank 4 stars.  During last year, I checked again for the soundness rating of my bank, and it fell to 3 stars.  I can't find UFB or the bank that took over them, Waterfield Bank, on Bankrate anymore.  On a Google search, however, I did find a page from Bankrate that is pretty recent with the latest soundness ratings for UFB.  Apparently, the ratings dropped to 1 star.  Wow. 

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I don't know what happens now, but in the mid 1980's when so many banks failed in Alaska, you became an unsecured creditor and had to wait until the bank is liquidated as in any other bankruptcy.

If someone has the knowledge and time to investigate there is a lot of money to be made in buying the loan packages from FDIC but you can loose your shirt if you don't do your own due diligence.

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kawikaho, this isn't necessarily directed at you but what happens if someone had deposits over the FDIC limit?

 

I believe so far, with the size of the losses and implicit guarantee by the government, no investor has lost a single dollar of their deposits...even if they were above the FDIC limits.  As each bank fails, the deposits are transferred over to the new host institution, and depending on the agreement between the new host institution and the FDIC, there is some cost sharing of the losses incurred by the former bank that held the deposits.  As far as I know, so far all deposits have been secure...every single dollar. 

 

Now that isn't to say all deposits would be secure if one of the major institutions fails, especially with certain off-balance sheet guarantees that are well beyond the abilities of the FDIC to handle, but so far I believe deposits have been safe.  With the amount of scrutiny in the banks capital ratios at the moment, the government seems to have a pretty good handle on issues.  Cheers!

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I don't know what happens now, but in the mid 1980's when so many banks failed in Alaska, you became an unsecured creditor and had to wait until the bank is liquidated as in any other bankruptcy.

If someone has the knowledge and time to investigate there is a lot of money to be made in buying the loan packages from FDIC but you can loose your shirt if you don't do your own due diligence.

 

 

I believe that being treated as an unsecured creditor with the highest priority is still the case.  If the insolvent bank is acquired by a stronger bank and there is favorable development of the loans or portfolio, remaining depositors with accounts above the limit of FDIC insurance will generally be paid off at that time.  

This is generally what happens because the FDIC absorbs the losses of the failed bank before facilitating acquisition of the remaining assets and liabilities by another institution.  There is no statuatory guarantee that all depositors will be paid off, but after a delay of a few months or sometimes several months this is de facto what happens.  If there were an actual guarantee, enormous amounts of "hot money" could be attracted by a failing institution simply by advertising a high interest rate for deposits.  

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