What to Do If Your Bank or S&L Fails

by News Guy on August 13, 2010

Great Barrington, Mass. – With 775 – or nearly 10 percent – of all U. S. banks and savings & loans on the Federal Deposit Insurance Corporation’s list of “official problem institutions,” consumers need to prepare themselves for more bank failures and take special care if their bank is taken over by another, the American Institute for Economic Research (AIER) warns.

“The number of ‘problem institutions’ has increased ten-fold over the past three years, and with that the probability that a consumer will experience a failure,” said AIER’s experts, Visiting Research Fellows William F. Ford and Ronnie J. Phillips.

Ford is a past president of the Federal Reserve Bank of Atlanta and currently holds the Weatherford Chair of Finance at Middle Tennessee State University. Phillips is a senior fellow at Networks Financial Institute in Indianapolis.

The first thing consumers should do is not panic. Ford and Phillips say that when a financial institution fails, the FDIC typically will send a team into the institution late on a Friday to inform the managers that the business is being merged. By Monday morning, the institution and its branches will reopen under new management.

“Hastily made banners with the new company’s name will let you know who is now handling your accounts,” they say.

If this happens, Ford and Phillips advise consumers to do the following:

  • Carefully review both your online accounts and any mailings you receive for the first few months because the computer and record-keeping systems will change.
  • Find out immediately if there will be any changes to the way your accounts will be handled, so you know if there will be new fees, account minimums, etc. that didn’t exist with your previous institution.
  • Look into whether there are any special promotions for new customers that may benefit you. You will be, after all, a new customer and may be eligible.
  • While the current tellers and lower ranking managers will likely remain in place for the short term, introduce yourself to the new branch manager or head teller whenever the people you know are replaced.
  • Review the new institution’s hours of operation and list of locations to determine whether the changes are more or less convenient for you.

“There will be no direct financial loss if consumers have $250,000 or less in an FDIC-insured account, but there could be other changes with negative – or positive – impacts,” say Ford and Phillips.

In their report, “Will Your Bank Fail?,” Ford and Phillips provide some fairly simple ways to determine if a bank or savings & loan is in danger.

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The American Institute for Economic Research (AIER), headquartered in Great Barrington, Mass., is a 77-year-old nonprofit educational organization.

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