The average citizen is unfamiliar with a failed bank resolution and does not understand how the process works. But, when individuals are notified that they bank is being closed, immediately there is an urgent need to know the implementations of this resolution and how it will impact access to their monies. The simplest explanation is that when a bank is not able to fulfill its obligations to deposit customers or to creditors, a state or federal banking regulatory agency will act to close the bank.
<strong>CLOSING A BANK AND NOTIFIYING CUSTOMERS</strong>
The responsibility to close an insolvent bank rests solely with the Comptroller of the Currency for National Banks and with the State Banking Commissioner for State Chartered Banks. Once the resolution has been made to close a bank, the Federal Deposit Insurance Corporation (FDIC) will act to (1) immediately notify all depositors of the bank closure and (2) pay depositors up to the federally insured account limits. The most current FDIC coverage limits, for all combined accounts in a single bank that includes all branches of the bank, can be viewed at http://ww.fdic.gov/deposit/deposits/dis/ .
Depositors will also be notified at the time that a failed bank is procured by another bank. Acquisition by another bank is a best case scenario for the depositors as the new bank assumes the assets and liabilities of the closed bank.
<strong>FDIC METHODS TO CLOSE A FAILED BANK RESOLUTION</strong>
The FDIC also acts as the receiver for a failed bank with responsibilities to (1) collect and sell the failed bank’s assets, (2) settle the failed bank’s debts, and (3) to settle depositors’ claims for any monies that exceed the insured limits. The two most common methods include:
1. Paying off depositors’ insured claims and liquidating the assets of the failed bank. Insured claims may not receive some of the latest amounts due for interest. An uninsured claim occurs if a bank customer has total deposits that exceed the FDIC insured limits. Uninsured claims are handled on a basis of any available resources remaining after the liquidation of the closed bank’s assets.
2. Negotiating and formulating a purchase and assumption agreement (P&A Agreement) of the failed bank’s assets and liabilities by another bank. This would include the transferring of both insured and uninsured deposit accounts to the new bank. A P&A Agreement is also transitionally known as a whole bank transaction or an open bank assistance agreement.