John Marske, Lead Advisor and Certified Financial Planner (CFP) at Triad Financial Advisors (TFA) explains and discusses the collapse of Silicon Valley Bank (SVB)….(read more)

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Understanding Bank Failures & What Happens Next

By John Marske, Triad Financial Advisors

Bank failures can be alarming and leave customers feeling uncertain about their financial future. However, it is important to understand the reasons behind these failures and what happens next to ease any concerns. In this article, we will explore the causes of bank failures and shed light on the next steps taken after such unfortunate events.

Bank failures can be driven by various factors, including poor management, economic downturns, inadequate risk management, or even fraud. In some cases, banks take on excessive risks without sufficient capital to cushion potential losses. When these risks materialize, the banks are unable to meet their financial obligations, leading to their failure.

Once a bank fails, the Federal Deposit Insurance Corporation (FDIC) steps in to protect depositors and ensure the stability of the financial system. The FDIC is an independent agency of the U.S. federal government that serves as a deposit insurer for banks operating in the United States. Its primary role is to guarantee bank deposits up to $250,000 per depositor per insured bank.

When a bank fails, the FDIC immediately takes control of the bank’s assets and liabilities. This process is often referred to as “bank resolution.” The FDIC evaluates the bank’s financial condition, determines the value of its assets, and takes steps to ensure its obligations are met.

In most cases, the FDIC will transfer the failed bank’s deposits, loans, and other assets to a healthy bank through a process known as an “assisted acquisition.” This allows the acquiring bank to assume the failed bank’s customers and continue providing banking services without interruption. Depositors’ accounts are seamlessly transferred to the acquiring bank, ensuring customers can access their funds without disruption.

It is essential for customers to understand that most bank failures are resolved quickly, within a few days or weeks at most. The FDIC plays a vital role in minimizing disruptions and maintaining confidence in the banking system. Throughout the process, the FDIC communicates with depositors, offering information and guidance to ensure a smooth transition.

Customers of failed banks should be aware that their banking services may be temporarily unavailable during the transition period. However, they will have full access to their insured deposits once the FDIC completes the resolution process. Additionally, accounts typically retain the same terms and conditions, including interest rates and account numbers.

To protect yourself in the event of a bank failure, it is crucial to ensure your deposits are within the FDIC insurance limit—currently set at $250,000 per depositor per insured bank. This includes funds in checking accounts, savings accounts, certificates of deposit, and certain retirement accounts. Reviewing and diversifying your banking relationships can also reduce potential risks.

In conclusion, bank failures can be concerning, but understanding the underlying causes and the FDIC’s role in resolving them can help alleviate fears. The FDIC acts swiftly to protect depositors and ensure a seamless transition of services to healthy banks. By being aware of the steps taken and staying informed, customers can confidently navigate through the aftermath of a bank failure and safeguard their financial well-being.