Since the start of 2008, the year the financial crisis struck, 445 U.S. banks have failed and been closed by regulators. The number has slowed drastically since it peaked in 2010 with 157.
What happens when a bank fails?
— The bank's main regulator will declare that the bank's health is "unsafe or unsound." If the bank is state-chartered, the regulator is the state banking supervisor. With a national bank, it's the U.S. Office of the Comptroller of the Currency. The regulator will typically find that the bank's capital — needed to cushion against loan losses — is too low and the amount of loans in default too high.
— The regulator appoints the Federal Deposit Insurance Corp. as receiver of the bank. This authorizes the FDIC to seize the bank's offices, vaults and records and sell its assets.
— The FDIC markets the failing bank to potential buyers. Interested buyers submit bids.
— FDIC officials and staffers visit the bank, usually on a Friday after closing. Secrecy is maintained. Bank employees don't know the shutdown is happening until the FDIC staffers arrive. The idea is to prevent a run on the bank by panicked depositors. The FDIC staffers spend much of the weekend reviewing the bank's books.
— The FDIC announces the bank's closing and in most cases, the transfer of its deposits and the sale of its loans and other assets to a healthier bank. By Monday morning, the bank typically reopens under the acquiring bank's name. Customers' accounts and deposits are automatically transferred.
— The FDIC uses the proceeds from selling the bank's assets to cover its liabilities, mainly customer deposits. The deposit insurance fund covers the rest. Accounts are insured up to $250,000 per depositor per bank. After the financial crisis hit, the amount insured was increased from $100,000.
If any money in a failed bank's deposit accounts exceeds the insured limits, those depositors become creditors of the bank. Within months, they'll recover some of their money, but not necessarily all. The amount recovered can range from 40 cents on the dollar up to the full amount.
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