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If You are FDIC insured up to $100,000 where does the difference go, if your bank is seized?

Updated on March 1, 2012

What Happens During A Bank Closure By The Feds?

The FDIC insures each distinct bank account you have up to $100,000. In other words you can be insured for all of your bank accounts even if they total more than $100,000 together, as long as each account is separate. You can deposit money in your name, spouse's, savings, checking, money market, and your kids' names and be covered for all of them as long as each has less than $100,000 in them.

When the bank is shut down, there is usually an assuming bank. That bank usually takes the positive bank assets (loans) that are paying under a Purchase and Assumption Agreement. The rest of the assets (bad loans that are 90 days or more delinquent, bank owned real estate, furniture and fixtures, etc.) are taken back to the FDIC site (there are several around the country) and account officers liquidate these assets. Real estate is marketed and sold, debtors (people who owned money to the bank via loans) are contacted and a settlement or buydown offer is made to encourage that individual to refinance at another bank institution and pay off the loan with the FDIC. Bad loans can also be packaged with others and sold to investors, including private ones. Those investors have a legal right to collect that debt against you.

The income generated by liquidating these bank assets is used to pay off your claim for any deposits not insured. I used to work for the FDIC and conducted bank audits, reviews, closed banks as an Asset Manager on many a closing. I've closed banks in Alaska and the northeast including several in Boston. The economy improved around the mid 90's and they were fewer. But I see now the FDIC is back in action. It was a great job and I loved working for the government.

One word of advice, if you have a mortage loan at a failed bank and FDIC has your loan, refinance and get back to a bank. FDIC does have a problem with making sure your loan is amortizing correctly and your escrow is properly administered. Their computer system is not geared to handle every type of loan product out there. Also, if you do not hear from anyone about where to pay, bank your mortgage payments, because we, they, will find you and collect that debt!


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    • whastzis profile image


      10 years ago

      I just spoke with my bank (credit union)consultant. If you have beneficiaries on your accounts, and your account has at least $100K, EACH of the beneficiaries are insured up to $100,00 EACH (if you die). This is called a "Totten Trust". The FDIC insures each beneficiary. The $100,00 limit is not spelled out enough in most cases, but it is in a booklet called: "Insured Funds" by the NCUA.

    • Paulie profile imageAUTHOR


      10 years ago

      Click on the link above for a more detailed description of what goes on at a bank closing and just what is the bank doing with your hard earned money when you're not looking.

    • Amanda Severn profile image

      Amanda Severn 

      10 years ago from UK

      Scary stuff. I'm glad I'm this side of the Atlantic, although no doubt these problems will continue to ripple out. This is useful information for those who are stateside BTW. I believe things are a little different here, but we hope for the best....

    • Misha profile image


      10 years ago from DC Area

      It all assumes a failure of a single bank. However, in the current situation, when a big number of banks fail (and they will!) FDIC will NOT have enough money to repay everybody. Stay warned.

    • AEvans profile image


      10 years ago from SomeWhere Out There

      Wow!! That is absolutely valuable information as the reason for asking is my bank was seized and this is and was a serious concern for me. Great Article!!


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