What to do when your bank fails

The FDIC's resolution process is the most operationally rehearsed government function most U.S. consumers will ever encounter without realizing it. When an insured bank fails, the agency's strong preference is to find an acquiring institution to take over the failed bank's deposits and branches over the closing weekend, so that depositors experience the failure as a brand change rather than a loss of access. The mechanics are described from the regulator's side in bank failures and resolution; this article is the consumer-facing companion.

The article assumes the depositor's bank has failed and the depositor wants to know what to do. The short answer for most depositors: very little, beyond verifying that pending transactions process correctly and monitoring the acquiring bank's communications. The longer answer addresses the exceptions.

The standard case: P&A with continued access

In approximately 95% of FDIC-handled bank failures, the agency finds an acquiring institution that takes over the failed bank in a purchase-and-assumption transaction. The acquirer assumes the deposit liabilities (the customer accounts) and most of the asset book. Branches reopen on the next business day under the acquirer's brand; account numbers and balances transfer; debit cards continue to work; online banking transitions to the acquirer's platform over a defined period.

For depositors in this scenario, the practical steps are:

1. Read the FDIC press release, typically published on the FDIC website shortly after closure announcement on Friday evening. The release identifies the failed bank, the acquiring institution (if any), the FDIC's estimated cost to the Deposit Insurance Fund, and instructions specific to the failure.
2. Check the acquiring bank's communications, typically by email and by mail within days. The acquirer will describe the transition process, the timeline for online-banking migration, and any temporary operational restrictions during the transition.
3. Continue using accounts normally, recognizing that some operational interruption is likely. Debit cards typically continue to work; online banking may have a brief outage during the systems cutover; new wire transfers and ACH initiations may be delayed.
4. Do not attempt to unilaterally reverse pending payments. Pending direct deposits, ACH debits, and check deposits will process under the acquirer's systems. If the depositor stops a payment or tries to recall it, the result can be more disruption than the underlying transition.
5. Update direct-deposit instructions only if instructed to do so by the acquirer. The acquirer typically maintains the existing routing arrangements during the transition; new routing numbers may be issued later, in which case the acquirer will provide instructions.

Online banking and mobile banking applications typically continue to function, redirecting to the acquirer's platform after a defined cutover date. Debit cards continue to work; replacement cards branded for the acquirer typically arrive within several weeks. Statements for the cycle in which the failure occurred are issued either by the failed bank's receiver or by the acquirer, with a notification of the transition.

The payout case

If no acquirer is found, the FDIC pays out insured balances directly. The payout typically happens within one to three business days of the closure. Depositors receive a check by mail or, where the FDIC has the depositor's payment information, an electronic transfer. The amount paid is the insured balance plus accrued interest as of the closure date, up to the $250,000 per-ownership-category limit.

For depositors in this scenario, the practical steps are:

1. Verify your ownership-category structure against the FDIC's coverage analysis. The FDIC's payout will reflect their analysis of the account titling; for unusual structures (revocable trust accounts with multiple beneficiaries, IRA accounts at the same bank where the depositor also has non-IRA accounts), the FDIC's analysis should match the depositor's understanding. Discrepancies should be raised through the FDIC's claims process.
2. Wait for the FDIC's communications. The agency typically opens a temporary claims office at the failed bank's main location and a dedicated phone line for depositor questions.
3. Establish a new account elsewhere. The payout funds need a destination; opening an account at another insured bank is the typical step, both to receive the payout and to resume normal banking.
4. Update direct deposit and autopay. Federal benefits and payroll need to be redirected; recurring authorizations need to be updated. This is similar to a customer-initiated account closure but compressed into a tighter timeline.
5. For uninsured balances (above $250,000 in any ownership category), expect to file a claim with the FDIC receivership and to receive only partial recovery, over a period of months to years, as the FDIC liquidates the failed bank's assets.

The systemic-risk exception case

In extraordinary cases, the FDIC may invoke the systemic-risk exception under §13(c)(4)(G) of the Federal Deposit Insurance Act to extend coverage to uninsured depositors. The exception requires concurrence of two-thirds of the FDIC Board, two-thirds of the Federal Reserve Board, and the Treasury Secretary in consultation with the President. It was invoked in March 2023 for Silicon Valley Bank and Signature Bank — see 2023: SVB, Signature, First Republic.

For depositors in a systemic-risk-exception case, the practical effect is that uninsured balances are paid in full as if they were insured, typically through a P&A transaction with a successor bank. The depositor experience is similar to the standard P&A case. The exception is rarely invoked, and uninsured depositors should not expect it at their institution.

Pending transactions and debit-card surprises

Several specific transaction-level issues can arise during a failure resolution.

Outstanding checks drawn on the failed bank typically continue to be honored by the acquirer in a P&A transaction, with any operational interruption resolved by the receiver. In a payout case, outstanding checks may be returned; the payee will need to be paid from the new account.

Pending wires and ACH transfers typically process under the acquirer's systems with brief operational delay. In a payout case, in-flight transactions may be returned, requiring the depositor to re-initiate from the new account.

Debit cards typically continue to work; the network connections from the failed bank's BIN range are honored by the acquirer pending a card-replacement cycle.

Holds on deposits placed before the failure are typically released to the standard Reg CC schedule once the acquirer's systems pick up the account; some operational delay may occur.

Mortgages and loans at the failed bank continue to be serviced; the loan's payment terms do not change. The receiver or the acquirer (depending on the resolution structure) becomes the loan's servicer; the borrower should continue making payments as previously instructed until receiving formal notice of the new servicer's payment address.

Limits and uncertainty

The FDIC's resolution playbook is durable. The principal area of evolution is the systemic-risk exception, which was invoked twice in 2023 in a way that has affected expectations about whether and how it might be invoked in future. The Federal Reserve, the FDIC, and Treasury have all signaled that the bar for invocation remains high; commentators differ on whether the 2023 invocations have practically lowered the bar. Depositors with balances approaching or above the $250,000 per-category limit should size their deposits accordingly and not rely on the systemic-risk exception.