by j.d. stegall

Created on: October 31, 2009   Last Updated: April 28, 2011

The man was excited when he walked into the bank to get the approval letter from his loan officer. The approval letter had bad news under the header: denied, do to too many close friends at collection agencies. In the past banks were denying customers on because of bad credit. Now the FDIC (Federal Deposits of Insurance of Corporations) is closing down banks like a renegade Sheriff with a mission.

With the economy in a recession, what happens when your bank goes under? Do they drop your money into a black hole in interstellar space? These questions have probed the minds of many. Let's us look into the issue to see what your best bets are for securing your cash when your bank is launched into oblivion.

According to http://www.marketwatch.com there has been 109 banks shut down in 2009. Banks in Georgia account for one-fifth of all U.S. bank closings this year, with 20 failures, followed by Illinois at 17, California at 10, and Florida at nine."

According to http://www.bankrate.com, over 300 hundred banks are on the list for being shut down. The process can take either months or a few days depending on whom the FDIC puts in charge. The charter authority or state closes the bank down. The FDIC, an independent branch of the federal government, comes in when there is too much money that cannot be insured and backed by the government. The FDIC is the receiver of the bank.

Most people don't even have a clue about their banks closing because it happens so fast and without without warning. You won't get an announcement t in your daily newspaper nor will you hear it on Oprah. If it happens they could close down late in the afternoon on a Friday and be opened under a different name on Monday morning.

So most of the time these banks will reopen, but not doing business as usual. All of the bad debt and risky loans must be sold off to try to keep liabilities to a minimum. The FDIC goes in to high search mode for a buyer to get the failed bank off its books.

The FDIC normally covers limits on each customer assets plus 50% of uninsured funds. Depending on what the FDIC limits, normally over 100k in accounts, customer must fill out a type of claim form to whether they are able to receive their own cash. The standard amount of deposits that they protect currently is 250k but this is only temporary until 2013.

Most experts recommend that you have you funds spread over several banks so that you don't run the risk of losing it in a recession or worse. Consumers stick closer to the 100k limit that gives them more peace of mind regarding their deposits.

It's a weird situation to most people because they are caught off guard. Even in an economy this bad they still expect their banks to stand strong under the harsh economic times. It's like driving backwards up to the teller window and expecting to get money back.

Unfortunately, we are in this situation do to stupid decisions by lenders. If bank robbers were smart, they would just go take out a 1000-year loan and retire early. Lenders were playing the money game with mortgages, now the situation has come full circle to snatch us under like sharks in the ocean.

It is not predicted to get much better in the near future - it took us years to get into this disaster and will take many more to overturn the situation. Consumers can also do their part in not taking on loans they know they cannot repay and banks must start making one wise decision at a time.

Learn more about this author, j.d. stegall.
Click here to send this author comments or questions.