FDIC: Deposit Insurance FAQs

q: what happens when a bank fails?

a: in the unlikely event of a bank failure, the fdic responds in two capacities.

Reading: When does fdic insurance kick in

First, as insurer of the bank’s deposits, the fdic pays insurance to depositors up to the insurance limit. Historically, the fdic pays for the insurance a few days after a bank closes, usually the next business day, by either 1) providing each depositor with a new account at another insured bank in an amount equal to the insured balance of their account at the bank failed bank, or 2) issue a check to each depositor for the insured balance of their account at the failed bank.

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In some cases, for example, deposits that exceed $250,000 and are tied to trust documents or deposits established by a third-party broker, the fdic may need more time to determine the amount of deposit insurance coverage and may request information supplementary depositor to complete the insurance determination.

Second, as trustee of the failed bank, the fdic assumes the task of selling/collecting the failed bank’s assets and settling its debts, including claims for deposits in excess of the insured limit. . If a depositor has uninsured funds (ie, funds above the insured limit), he can recover a portion of his uninsured funds from the proceeds of the sale of failed bank assets. however, it can take several years to sell the assets of a failing bank. As assets are sold, depositors who held uninsured funds generally receive periodic payments (on a pro-rated “cents on the dollar” basis) on their remaining claim.

Source: https://amajon.asia
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