As bank failures mount into a heap of moldering economic stimulus, and the FDIC's Bank Insurance Fund shrinks to its lowest level in many years, FDIC Chairman Sheila Bair tells the public that depositor have nothing to worry about, because, "The FDIC fully guarantees their insured deposits and provides them with seamless access to their money. For the insured depositor, a bank failure is a non-event."
This may be true for many depositors, however it is not true for the bank's "C" level management team, board of directors, and shareholders - they are the losers! In more ways than one! Not only do they lose their bank, but they lose their jobs, careers, and opportunity to associate with a bank in the future. With the FDIC there is no forgiveness, no bankruptcy court to "work out" the problems and reorganize the institution - the only option is failure.
The FDIC has a $100 billion line of credit with the U.S. Treasury - they can close a lot of banks with that much money. So far, all the banks that have been closed, the expense has been paid for by the FDIC's Member Banks through their deposit insurance premiums they have paid in over the years. We can only hope, the FDIC won't have to tap that line of credit. The law states that the FDIC guarantees deposits with the full faith and credit of the U.S. Government, which means borrowing from the U.S. taxpayers. We are the full faith and credit of the U.S. Government.
In most cases when a bank is closed the deposits are available the next business day. This is because the FDIC is usually available to help another institution acquire the deposits and make good on them. Often the FDIC has to give a lot of concessions to the acquiring bank - which costs the insurance fund money. The complexity of these transactions, even for a small bank, takes many hours to iron out - often taking upwards of ninety people from the FDIC two weeks to close a bank.
The amazing thing is that with all the flaws of the system, it seems to work - no FDIC insured depositor one has ever "lost a penny of their deposits" according to Ms. Bair, "and none ever will". Thank goodness for the full faith and credit of the U.S. Government.