by Hank Lacey

Created on: October 27, 2009   Last Updated: November 09, 2009

This year has been notable for the number of banks that have failed in the U.S. According to the Federal Deposit Insurance Corporation (FDIC), 109 banks have been forced into receivership as of October 23. That is the highest number since 1992, when the nation was in the midst of the savings and loan crisis.

Twenty-five American banks failed in 2008.

Despite the toll of bank collapses, few are likely to lose money because funds on deposit at every bank and savings and loan association in the country are insured by

FDIC.

Created at the height of the Great Depression, the independent agency has protected deposits at member banks from loss for 75 years.

A bank customer's deposits up to $250,000 are safe from loss. As of Jan. 1, 2014 the cap reverts to $100,000.

The Deposit Insurance Fund, from which FDIC covers protected deposits, is capitalized by premiums assessed against banks. The premium each bank pays is based on the amount of insured deposits it holds and the degree of risk the bank's balance between assets and liabilities poses to the fund.

A bank is placed under FDIC receivership when the amount of its cash reserves becomes insufficient to meet obligations to depositors and creditors. The decision to place a bank in receivership is made by the bank's chartering authority, which could be a state banking agency, the Comptroller of the Currency or the Office of Thrift Supervision, and the bank remains in that status until a buyer is found.

The government does not announce that it intends to place a bank in receivership. Ordinarily, the bank is re-opened under new ownership within a few days. Customers continue to have access to their funds up to the deposit insurance limit. Once the purchasing bank takes over ownership of the failed institution, and FDIC ceases acting as receiver, the role of deposit insurance ends and the new owner of the bank honors transactions in the usual manner.

In some cases FDIC cannot convince another bank to purchase the assets of a failed bank. In that situation FDIC will reject debit card transactions, return checks written against accounts at the failed bank, and issue checks for the amounts on deposit and final statements to customers.

Customers who have more on deposit than is covered by the insurance limit become creditors of the receivership. FDIC will pay them the amount not covered by deposit insurance as it sells the assets of the institution. On average, those account holders receive about 72 cents for every dollar of

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