(Image via: Focus)
In the last quarter of 2009, banks were dropping like flies. The fallout of bad loans dished out during the real estate boom in 2006 and 2007 is still affecting the banking industry today. In fact, bank analysts predict as many as 200 institutions will close their doors this year, which would be a 43% increase from last year. And maybe more failures in 2011 and 2012.
What exactly happens when a bank fails and what does it mean for your money? The FDIC is pretty good at explaining this on their website. Generally, a bank is closed when it can no longer meet its obligations to depositors. The FDIC steps in and insures all the deposits, up to $250,000 per depositor, per insured bank. The FDIC also acts as the "Receiver" of the failed bank and assumes the task of settling its debts by selling or collecting the bank's assets.
In terms of your cash in the bank, if you stay under the insured limits, you should only feel a minor hiccup in your usual banking experience. Mostly the headaches involved are with your bank being bought out, branches closing, and new cards being dispensed with the new bank's name.
Even though the next couple of years will still be rife with bank failures, these banks will be smaller so they will have less impact on the market. The FDIC has a lot of work to do in the next few years. On the bright side, their process of resolving failed banks is running a lot smoother these days. And why not? They've had quite a lot of practice. If you'd like to see all the banks that have kicked the bucket, the FDIC keeps a handy list.