What to do if your bank follows the 115 that failed this year

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Almost every Friday this year, usually in the evening, a grim announcement is released to the public: Another bank has failed.

Sure enough, Friday came and went, and with it, came the announcement that another bank had failed. Actually, not just one bank had failed -- but nine. That's the most that's occurred on any one day this year.

So far this year, that brings the total number of bank failures to 115. The nine new banks are in California, Illinois, Texas and Arizona, all subsidiaries of FBOP Corp, a holding company based in Oak Park, Ill. And while nine bank failures at once is a lot, because they're all part of the same company, it doesn't seem as chilling a day as it might otherwise would have been.



Nevertheless, a few thoughts are probably crossing your mind right now, including: What the heck do I do if my bank fails? And how can I keep from having my money in a bank doomed for failure in the first place?

Let's start with the last point first. Just how do you keep your money safe in the event your bank fails? Ken Alverson, managing director of Novantas, a consulting firm for the banking and credit card industry, has several recommendations to help you protect your money should your bank fail.

Don't keep more than a quarter of a million dollars in one account. Sure, some people (and I'm one of them) are thinking, "Um, no worries there." But for those of you who do have more than $250,000 in assets, be sure not to keep more than that amount in any one account. The FDIC insures accounts up to $250,000, so if you have one with, say, half a million dollars in it and your bank fails, yes, you could conceivably lose half your money. You may not, says Alverson, but why take that chance?

Keep your money -- even if we're talking a few thousand dollars -- at two different banks. "If you belong to a community bank, I'd also open an account at a medium or large bank," Alverson said. "You want to disperse your risk. You don't necessarily have to put it in a JPChase or Wells Fargo, although that's not a bad idea."

If you're really worried about the possibility of your bank failing, put your money in a big name, nationally known bank. If you belong to a small or medium-sized bank, you're somewhat more at risk, claims Alverson. (although with more than 8,200 FDIC-insured banks in America, that risk is spread pretty thin).

"Banks are going to continue to fail as they sort through their problems," Alverson said. "I think the bigger banks have been through a more rigorous analysis of their balance sheets and credit issues, and in many ways, the top 20 to 50 of the largest banks are probably in the best shape."

But let's say you follow the advice above, and you still end up at a bank that fails. What do you do then?

Whatever you do, "don't panic," urges Henry Walker, CEO of Farmers & Merchants Bank, a regional bank based in Long Beach, CA, and a financial institution with a strong, stellar reputation.

And here's why: In many ways, the FDIC has the art of bank failures almost down to a science, at least to the point where this year, more often than not, the process that shifts into gear after a bank fails has been a smooth one. Generally, the FDIC has some warning that a bank is about to fail, and by the time they're announcing the failure, a new bank has been lined up to take over the deposits and assets of the failed institution.

That's the case with the latest nine bank failures -- by Monday, they're all going to become part of a very successful bank -- U.S. Bank.

Of course, you can't rely on that to happen every time -- there may be complications. "It all depends on the situation;" Alverson said. "Sometimes, it's just for a weekend that you might have difficulty accessing your funds; sometimes, it takes longer, and it can be a frustrating experience. If there's a run on the bank, you could be looking at a lot of long lines at the bank, and it can be difficult getting service."

But Alverson agrees with Walker that nobody whose bank fails should panic. He says that the odds are, you'll be able to access your funds fairly quickly; you can also expect to receive a notification letter shortly after the new bank takes over, explaining just what's happened with your bank.

It may make you feel better to read up on bank failures at the FDIC Web site. There, you'll find updated information about the bank failures, a video message from the FDIC Chairman Shelia Bair and links for consumers to use (if you want to make sure your bank is FDIC-insured, which most banks are, you can use their Bank Find page). The FDIC site also has a handy list of all of the banks that have failed this year and throughout the decade.

And if it helps you feel any better, as CNNMoney.com points out, we're still a long way off from the savings and loan crisis of 1989, when 534 banks closed, or even 1992, a lousy year for banks -- 181 closed, but most of the problems involved a holding company in Texas, which had a lot of bad banks. It was also sort of the concluding year for a lot of Texas bank woes that had been going on for several years.

About the only thing you can be certain of is that the end is not yet in sight. After all, we've got two more months to go this year, and it's more than likely that even more banks will be closing.

Just which states have the most to worry about? "The banks in the most trouble tend to be in the states with the most residential real estate problems, like Florida, California and Arizona," said Alverson, who believes we may see many more bank closures if commercial real estate loans continue to crumble.

"If that's the second shoe to drop and the banks are forced to reclass what are a big part of their assets and capital, you can be sure there'll be even more failures. It's just a matter of how many, when and what the remedy will be," he said.

Geoff Williams is a regular contributor to WalletPop, writing mostly about banking issues. He is also the co-author of the upcoming book, "Living Well with Bad Credit."
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