Anybody been through a bank failure recently?

[IlliniGuy]

Has anyone had money in a bank that failed recently? I asked this question deep in another thread on GMAC Bank. I am wondering if depositing money, within FDIC limits, at a bank that might be in trouble is worth the hassle of dealing with an FDIC takeover. If there is little delay in being able to withdraw money from a savings account, and the FDIC will continue to pay interest on CDs, then I would say there is little hassle involved and no reason to avoid keeping money in a troubled bank. I would like to know the experiences of others.

Thanks.

[Hexdump]

about $35,000 through Fidelity, and it matured in the same week that the bank went belly-up.

I am not sure what happened between Fidelity, the Bank, and the FDIC, but when I called Fidelity, they told me no problem, and credited the funds including interest into my money market.

I seem to remember it was a bank in Las Vegas, or somewhere in Nevada.

hex

[SteveB3005]

Okay, here's mine. In June of 2008 bought a ,10k 2 yr, CD through Schwab in my Simple IRA on New Frontier of Greeley, CO. It paid interest every 6 months and those funds rolled into the sweep account.

April 10th 2009 New Frontier was closed by the Colorado State Banking Commission and on April 16th I receive this Email from Schwab.

On April 10, 2009, New Frontier Bank, based in Greeley, CO, was closed by the State Bank Commissioner, by Order of the Banking Board of the Colorado Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as Receiver. You may have read that to protect depositors, the FDIC created the Deposit Insurance National Bank of Greeley (DINB), which will remain open for approximately 30 days to allow depositors time to open accounts at other insured institutions. Bank of the West, San Francisco, California, was contracted by the FDIC to provide operational management of the DINB. However, the agreement did not include brokered deposits, including CDs sold through Schwab CD OneSource®. The FDIC will transfer funds to CD brokers, like Schwab, directly.

Schwab will provide the FDIC with your name and account information. If the FDIC needs additional information, we'll contact you. The FDIC will determine how much each depositor is eligible to receive, and will transfer the funds to Schwab. Once we receive the funds, we'll credit your account as quickly as possible.

April 21st, Schwab closed the position which was listed as, "In Receivership" and deposited the 10k plus interest accrued up to April 10th, 2009 in my sweep account.

In my mind that was about as smooth as a deal could go, I was satisfied.

[warbucks]

[quote="IlliniGuy"]Has anyone had money in a bank that failed recently? I asked this question deep in another thread on GMAC Bank. I am wondering if depositing money, within FDIC limits, at a bank that might be in trouble is worth the hassle of dealing with an FDIC takeover.

There are 375 banks last time I looked on the troubled bank list. GMAC bank is not on the list and in fact is rated 3 stars (adequate) by Bauer Financial. That said they were told by the stress test boys to raise 13 billion in new capital. Having gone through a couple of bank failures I can tell you that all I have lost was two to three weeks interest while waiting for the FDIC to redeem my brokered CD.

[jpsfranks]

I've had accounts at Washington Mutual for 15 years and had them right through its failure. In the last few weeks before its seizure by the FDIC I opened a 5% 1 year CD with them. The FDIC apparently auctioned off the whole operation, including deposit liabilities, and Chase has honored the CD. I saw no disruption in my access to money at any time. Chase is in the process of migrating over online bank account access to their site now; they already migrated card card info.

I think it's fine to rely on the FDIC, but whether or not your CDs will get honored or called seems to depend on how the FDIC structures the failure.

[nisiprius]

No, not recently. But a credit union, which was my main financial institution at the time, failed during the S&L crisis, circa 1991, and it was a total nonevent. One name on the door Friday, another name on the door Monday, same people behind the desk, same account numbers, terms, and interest rates.

A colleague had his main bank, a major regional S&L, fail at about the same time and had the same experience.

The whole purpose of FDIC insurance is to prevent people from worrying about bank failures, so it is very much in the everyone's interest, including the banks themselves, that the process be smooth. After all, even if people didn't think they would lose their money, if they believed that a bank failure would present a major hassle, that in itself might be enough to precipitate a run on the bank. A reputation for red tape, delays or grudging, foot-dragging service would undercut half the usefulness of deposit insurance.

I wouldn't open a new account at a bank that had a lousy BankRate or BauerFinancial rating. But my local bank got down to the lowest (one star) BankRate rating and I didn't bother to jump ship. (It's back up to two stars now).

[SteveB3005]

What is more bothersome to me than FDIC covering the money, is lost opportunity. The New Frontier CD I had was 4.5% and I have a larger 5yr CD with Gwinnett Community Bank out of Georgia that is 5.5% and that bank is on the brink.

Some good rungs are coming off the ladder that cannot be replaced with anything that earns nearly the interest.

Edit to add: In retrospect at the time I bought the Gwinnett Bank CD a 5yr Treasury was going for 4.8%, there is probably a lesson in there.

[bombcar]

I went through the failure of WaMu, and nothing interesting happened. In fact, it was surprisingly boring.

[mark500]

I want through he Penn Square Bank failure in OKC in the 1980s and had to wait in a long line to withdrawl my $1600.

[chaz]

I went through the failure of WaMu, and nothing interesting happened. In fact, it was surprisingly boring.

Me too. Boring is better than something ulcer-provoking.

[VTSMX]

IlliniGuy, I recently opened a GMAC Bank savings account and money market account and am in the process of transferring funds from ING Direct to them, so it is good timing that you bring up the subject now.

I too got a bit worried when I saw the stress test results. However, I have been through a bank failure with NetBank, which was an online bank a few years ago. When they failed, I had most of my money out already, but they ended up being absorbed by ING Direct. The process seemed to go very smoothly, and everything still operated, including checks and my debit card, even after ING took over.

So really, the FDIC has this down to a science, and there's not much to worry about, even if your bank goes under. I hope GMAC survives, though, since they are offering very nice rates right now.

[dm200]

Has anyone had money in a bank that failed recently? I asked this question deep in another thread on GMAC Bank. I am wondering if depositing money, within FDIC limits, at a bank that might be in trouble is worth the hassle of dealing with an FDIC takeover. If there is little delay in being able to withdraw money from a savings account, and the FDIC will continue to pay interest on CDs, then I would say there is little hassle involved and no reason to avoid keeping money in a troubled bank. I would like to know the experiences of others.

Thanks.

Last year, an organization I manage had $100,000 in Vanguard brokered CDs at Indymac Bank, when the FDIC shut it down. The FDIC limit was $100,000 at the time. In about 3 weeks, our Vanguard account was credited $100,000. We lost about 3 weeks of interest. Almost a non-event.

If we had the funds directly in the bank, there would not have been a delay. You do NOT get interest from the FDIC from the day the bank is shut down to getting the check.

[Infinite333]

I went through the failure of WaMu, and nothing interesting happened. In fact, it was surprisingly boring.

+2

[IlliniGuy]

Thanks for the replies. I'm glad that no one seems to have any horror stories, and that the experience of many was "boring!" The only issues seem to be with brokered CDs. This is reassuring. Nisiprius - you are right - if recovering funds from the FDIC were a hassle, it would undermine its effectiveness. Warbucks - thanks for pointing out that the GMAC Bank is not on the FDIC's watch list. VTSMX - GMAC Bank's rates are just too good to pass up!

By the way, I've read some good reviews about GMAC Bank elsewhere, regarding their good online interface, good customer service, and fast transfer speed. And, the web site notes that they have been in business since 2001, which is a pretty decent duration for an online business.

I miss the days where I could park my savings in the VG Prime Money Market Fund and get a consistently high yield. It was so easy...