The results are astounding. The financial world is still trying to keep afloat due to the closure of approximately one hundred banks nationwide. Everyone was very shocked and dismayed when the 100 year old Lehman Brothers failed. Last year alone, about twenty-five banks have failed or closed their doors. Undoubtedly, the economic conditions have caused havoc on these institutions. Many economists said the reason for this downturn was because several of these banks went into other areas like the housing market. Thus, when the housing market "bubble" exploded, it produced a domino effect. Moreover, when the Dow Jones constantly displayed a daily plummeting of stocks, it certainly did not help.
When customers observed that type of climate, panic and confusion stepped in. During that stressful and challenging period, one can feel rather out of control. Everyone can vividly recall the long lines that stretched around the perimeter of the failed Indy Bank on the West Coast last year. Statistics revealed that a recorded number of the population was withdrawing their money and placing it in safety boxes at home. Many hardware stores like Lowes and Home Depot saw an increase in the sale of these boxes. It was evident that many lost confidence in the banking system. Coupled with that, many businesses went and some are still grappling to remain in business.
Most times, when a bank closes its doors, it occurs on a Friday, and then reopens on a Monday. The Federal Depository Insurance Comany (FDIC), an independent agency of the Federal Government becomes the Receiver. A Notice of closure is generally placed on the bank door in the form of a news release. With this agency stepping in, it tries to recoup and sell as much assets of the failing bank. At the same time, they have to overseer offers from other banks who might be interested in purchasing the failed bank. The bank that purchases the failing one will also take over all the entire history. Sometimes, it will retain the current staff. An example of this situation is Bears Stearns. They made a transfer of all brokeage accounts to JP Morgan.
Although the bank is physically closed, customers can access their money through the writing of checks, ATMs, and debit cards, if the amount falls within the FDIC limit. On October 3, 2008, Congress increased FDIC Insurance amount from $100,000 to $250,000. This change has been extended to December 31, 2013. As a result, there is no need to panic and feel out of control as your money is secured with the Federal Government. If you have a mortgage or car loan, it is vital that you continue to make payments until you are advised differently.
For the uninsured portion of deposits, customers become creditors of the Receiver and certificates are given by the FDIC. The Spokesman for FDIC, David Barr expressed that payouts for the uninsured amounts would work faster if banks close earlier once trouble is detected. Eventually, these uninsured amounts are meted out with periodic payments starting with the top-tier creditors. Mr. Barr further stated that the average amount normally paid out is 72 cents on the dollar up to a period of 14 years. And, some times, the entire amount is paid out.
During a period of economic downturn, it is natural to feel a little out of control and stressed. However, it is important that you regain your control, and do not go stashing your money under the mattress. One way to secure some semblance of control and confidence in the banking system is to withdraw the uninsured portion you may have in one bank and spread the amounts in different insured banks. Also, it would be wise to make contact with the FDIC's Electronic Deposit Insurance Estimator and find out if your prospective banks are insured. These moves will allow you to gain protection, security and ultimately, peace of mind.
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