As bank customers, most of us would like to know what to do if our bank gets acquired or fails. What can we expect if our bank gets bought out?
Some years ago, Washington Mutual was known for online banking products such as a savings account that offered a high yield for linking with a checking account. Unfortunately, WaMu was the most prominent bank affected by the financial crisis. Let’s go over what can happen when a bank “fails” — and how it can affect your money.
Bank failures aren’t necessarily uncommon, but from 2008 and onwards, things got dicier for the banking industry. Scores of banks have failed in recent years. These failures have occurred to banks of different sizes that are located in a variety of states. Typically, you’ll find that a state or federal banking agency will move in on a failing bank when that bank owes more than it can pay back to its depositors.
When Washington Mutual suffered from the subprime mortgage crisis, it lost a great deal of its value. A bank run resulted when a number of depositors withdrew billions of dollars in a span of 10 days. This bank run drove the Office of Thrift Supervision to seize WaMu, which made this the largest bank failure to happen in the U.S. to date.
WaMu’s Buyout by JP Morgan Chase
The FDIC then stepped in to auction off WaMu to JPMorgan Chase. That meant that WaMu’s customers were absorbed by Chase’s banking division. Rather than completely suspend services for WaMu account holders, the FDIC indicated that deposits would continue to be accepted and that checks would be processed as usual. ATMs and online banking remained available.
Eventually, these customers were able to use Chase’s ATMs for their deposits and to transact business in Chase’s branches. After some months (by the end of 2009), WaMu branches across the nation were either closed or became Chase branches. Now, the former WaMu accounts have been fully transitioned to Chase accounts.
Your Bank Failed? FDIC Coverage Protects You
Fees aside, there’s still good news for existing customers of an acquired bank. You might be wondering what to do if your bank faces the possibility of failure. Thanks to FDIC coverage, you don’t have to worry about losing every penny you have. This is because the FDIC’s insurance covers each depositor for up to $250,000 per ownership category. Your savings and checking accounts are protected up to this amount. So are NOW, money market deposit accounts, and even certificates of deposit. If you have more than the maximum in one account, you should find another bank for the amount that isn’t covered.
If your bank fails, the FDIC will let you know by mail. When another bank buys your bank, you’ll get another letter informing you. According to the FDIC’s list of bank failures, the majority of failed banks are taken over by other banks.
Should You Switch Banks?
Should you immediately move to another bank or credit union if your bank is acquired by another institution? Following are some strategies you can follow if you are pondering this question:
1. Learn about the acquiring bank. This might be a good idea. That’s because the new bank might actually offer favorable items like free checking or decent interest rates for its incoming customers. WaMu’s customers gained access to Chase’s line of credit cards, for example.
2. Compare the acquiring bank against the alternatives. Take some time to visit the acquiring bank’s branches and listen to what the word of mouth about the bank might be. Compare this bank’s reputation to that of any competitors you’re eyeing. It isn’t worth the hassle to make a long drive to a bank that’s farther away or to one that doesn’t have the benefits you’d prefer.
3. Wait things out and keep the status quo. Don’t act rashly. Your old ATM cards may remain in service during the transition, and you’re likely to be able to access your account online. Your old checks will probably still be processed as usual, until the new bank discloses new terms. Also, it’s best for you to continue to make your loan payments as usual until you’re directed to a new payment address or location. Wait out the transition period before you decide to leave. Bank acquisitions are complex negotiations that take time, so it may be six months or longer before you notice anything different with your rates or fees.
4. Be prepared for possible changes to existing accounts. It’s possible for your bank to have its products transition to other types with added fees. This is when you should decide whether it makes sense to make changes. For instance, WaMu’s former customers learned that their free checking accounts were transitioning to a fee-based type of account. We’ve written about how the popular WaMu Free Checking account turned into the Chase Total Checking account. The bank sure couldn’t wait to start charging their customers some bank fees. So be aware that your new bank may adjust your account’s terms and may modify the services you’re offered.
5. Don’t forget to monitor your deposits through a transition period. Unclaimed deposits are sent to the FDIC for processing. After that, the FDIC turns over the unclaimed deposits to the state you list as your address on your account.
No Bank Is Immune
As we’ve learned from the last few tumultuous years, a bank failure can strike large banks like WaMu or even the friendly, smaller local banks that have been around for decades. However, since other banks tend to take over the failures, you’re more likely to transition to a new bank than to utterly lose your money. Such was the case when WaMu’s customers were picked up by Chase. Make sure you’re aware of your bank’s FDIC coverage and general state of health and you’ll go a long way to protect your assets.
Created July 11, 2008. Updated October 19, 2011. Copyright © 2011 The Digerati Life. All Rights Reserved.