Calculated Risk: Bank Failure: FDIC Payout Transactions

Calculated Risk: Bank Failure: FDIC Payout Transactions

The FDIC always tries to unload a failed bank onto another bank and it almost always succeeds. Until now.

There have been two large payout bank seizures this month (as opposed to finding a buyer). The first was New Frontier Bank in Greeley, Colorado on April 10th, and the second was First Bank of Beverly Hills, California last Friday.

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Greeley's largest bank was so larded with troubled assets that, for the first time in three decades, federal officials couldn't find another bank willing to do the liquidation. On April 10, they appointed themselves bank executives to hasten its demise.

I wrote about this in an earlier post about what happens when a bank fails. If a failed bank isn't bought by another bank, then the FDIC simply pays out the insurance. But that can take a couple of weeks. In the meantime, all of your automated payments and deposits are broken and any checks outstanding will be returned.

My advice to everyone is to withdraw as much as you can every day from your ATM machine until you have at least $1,000.00 in actual cash; if you're rich, you should have even more cash on hand; you'll want to do it the old fashioned way and make a huge withdrawal, although you'll find it is surprisingly hard to do; you have to declare your withdrawal to the IRS and then you have to figure out how you're going to walk out of the bank with $5,000, $10,000, $15,000 or more in your pocket or satchel, and then think about where you are going to store it.

No, I'm not starting a bank run or a panic, or even trying to. I'm just saying it would be prudent to have some cash on hand in case your bank goes into receivership and the FDIC does not find a buyer. If every single family in American withdrew $1,000.00 that would only be $100 billion dollars, which quite frankly would help insure against a bank run, because each family would know they had some ready cash.

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