By Candice Choi
AP Personal Finance Writer
NEW YORK (AP) -- A bank fails and is taken over. Can the new owner slash the interest rate on your certificate of deposit?
It's among the questions arising more frequently as bank failures and takeovers pick up.
The acceleration is in large part because banks are taking massive losses on souring commercial real estate loans. The 143 bank failures since January have already eclipsed the tally for all of last year. It's also the most since the savings and loan crisis in the early 1990s.
The uncertain environment means takeovers of weakened banks are also a concern.
From the customer's perspective, a takeover that results as part of a merger or acquisition generally results in less turmoil because the new owner honors the terms and conditions on existing accounts. That's not always true if a bank fails and the FDIC has to find a new bank for the deposits.
Depending on the situation, here's what you need to know about the fate of your deposits:
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Q: If my bank fails, what immediate steps do I need to take?
A: In the vast majority of cases, the Federal Deposit Insurance Corp. finds another institution to take over a failed bank and operations go on as usual. Branches remain open and services such as ATMs, checks and credit cards continue. The biggest immediate difference may be the name on the bank.
The new bank will notify customers of the change in ownership within a week or so. Customers have 18 months to withdraw their money or notify the new bank that they want to remain a customer. Any routine account transaction qualifies as notification.
For CDs that mature more than 18 months after a takeover, customers need to let the new owner know that they want to keep the account.
Otherwise, unclaimed accounts are turned over to the FDIC, which then turns them over to regulators for inclusion in the state's unclaimed assets.
Q: What immediate steps do I take if my bank fails and a new owner isn't found?
A: Your account will be frozen by the FDIC on the day of the failure. So if you have automatic bill payments set up, one step you'd need to take would be making other arrangements to get those bills paid.
You're not off the hook for credit card, mortgage or other loan payments to a failed bank either. For several months after a bank fails, you'll likely be instructed to make payments to the FDIC, or the money will be redirected to the agency until the loans are sold off to another institution.
Q: If my bank fails and new owner isn't found, when and how do I get my money?
A: The FDIC says this is a rare occurrence; only about 5 percent of failed banks aren't taken over by a new owner.
But if that happens, the FDIC will mail out checks to accountholders for insured deposits within about three business days. Keep in mind that the limit on insured deposits was permanently raised to $250,000 this year. The coverage applies to checking, savings and money-market accounts and CDs.
Investments such as stocks and bonds aren't covered.
The limit applies to the total amount you have at a single bank, but there are ways to structure accounts so deposits exceeding the $250,000 threshold remain insured.
For example, the insurance limit applies to each co-owner of a joint account. So you and your spouse could safely have up to $500,000 in a joint account.
To learn more about how to properly set up your accounts, check the FDIC's insurance estimator at http://tinyurl.com/2fk6vph.
Q: What if my bank fails and my deposits exceed the insured FDIC limit?
A: If the FDIC can't find a new owner, you become a first-tier creditor. This means your claims take priority in money raised from sales of assets.
You'll get periodic checks from the FDIC, but just how much money you ultimately recover will vary depending on how much the FDIC can make from selling the bank's remaining assets. The process usually takes between three and five years to complete but may be longer.
If a new owner is found, most banks now take on all deposits even if they exceed the insured limit. If the new owner only takes on insured deposits, you'd become a creditor of the failed bank for the remaining amount.
Q: If my bank fails and is taken over, will the new owner honor the interest rates on my accounts?
A: This is a concern because struggling banks often dangle competitive rates in an attempt to attract more deposits.
The owner of a failed bank has to honor the interest accrued up until the time of the takeover. But the rate could be lowered going forward. That said, you have the option of withdrawing deposits penalty-free if you're not happy with the new offer. The acquiring bank also can't pay a lower interest rate than it's offering its existing customers for similar accounts.
If a bank is taken over as part of a regular merger or acquisition, the new owner must honor the terms on the CD to maturity.
Q: If I have accounts at two banks, and they merge or one buys the other. What is the FDIC insurance coverage on my collective deposits?
A: Deposits will remain separately insured for at least six months after a bank merger. With a CD, separate coverage remains in place until your first CD matures.
At a time of uncertainty, the idea is to give customers time to decide how they want to proceed.
Published: Mon, Nov 15, 2010
