Financial Reform Returns $200 Million to Depositors of Six Failed Banks

Failed bank
Failed bank

Depositors of six failed banks will have about $200 million returned to them because of a provision in the newly passed Wall Street Reform and Consumer Protection Act (also known as Dodd-Frank) that permanently raises the standard maximum federal deposit insurance amount from $100,000 to $250,000.

President Obama signed the financial reform legislation into law on Wednesday morning. Among its myriad provisions, Congress decided to make the temporarily increased insurance protection on consumer accounts retroactive to 2008, the year the financial crisis began.

As a result, depositors at six banks who received only $100,000 on accounts that had balances above that amount when those banks failed can now receive reimbursement of up to $250,000 per account. Those banks are Hume Bank in Hume, Mo.; ANB Financial of Bentonville, Ark.; IndyMac Bank in Pasadena, Calif.; First Priority Bank in Bradenton, Fla.; Columbian Bank & Trust Co. of Topeka, Kan., and Silver State Bank in Henderson, Nev.

Checks Are in the Mail

The depositors won't have to do anything to receive their money. Since they've already been identified as creditors of a failed bank because they lost money, the FDIC has them on file and is preparing to distribute the funds.

"As more money comes in to be dispersed to creditors, we would make those payments," says FDIC spokesman Andrew Gray. "We've identified the uninsured and will be mailing out checks shortly."

The new provision doesn't expand the types of accounts eligible for Federal Deposit Insurance Corp. coverage, it only increases the amount of coverage the government guarantees. Standard savings and checking accounts, CDs, IRA accounts, "457 Plan" accounts for state government employees, most 401(k) accounts and self-directed Keogh accounts are covered. Prior to the new law being signed, Congress passed a temporary provision that increased the insurance limit to $250,000 through December 2013. Now the higher level is permanent.

A Pretty Stressed Fund

FDIC Chairman Sheila C. Bair noted in a statement that the new law means "depositors with CDs above $100,000 but below $250,000 will no longer have to worry about losing coverage on those CDs maturing beyond 2013." She added: "Insured deposits provide the comfort and peace of mind to depositors that their money is 100% safe -- provided they keep their deposit balances within the insurance limits."

Gray says the increased protection is already paid for through mandatory contributions banks and other financial institutions make to an FDIC fund set up for this purpose. While the fund has been under stress lately because so many financial institutions have failed because of the crisis, he says the fund has more than $45 billion of liquidity and is implementing a plan to build assets. "Last year we did prepaid assessments where banks paid three years of assessments into the fund," he says, "so we're in good shape."