How Bank Failures Impact Consumers

The Wall Street Journal reported today that Friday’s string of bank failures brings the total number of failures since September 25, 2008 to 279. The FDIC lists 829 banks as “problem banks,” indicating that bank failures are far from over.

Bank failures have two major impacts on consumers. The customers are directly impacted, and all banking customers are affected on a macro level. It is important to understand what happens when a bank fails.

Micro Level – Bank Customers

I have gone through a bank failure personally, and it is actually a lot easier than you might expect. If you have a loan with a bank that fails, you will start making payments elsewhere. If you have assets (checking, savings, CDs) with the bank, you will receive a check from the FDIC that covers your insured assets. My check came within two weeks.

It is a hassle to change banks, but it is something that people do all the time. If you are interested in changing banks, be sure to read my guide.

Macro Level – Economy Wide Impacts

Fewer banks results in less competition. Less competition means higher prices for consumers. That is simple economics.

We keep reading about increased fees for credit card rewards programs and bank services. This is partially a result of the end of automatic overdrafts. This is also, however, a result of less competition. It is bad for the country, economy, and consumers when a bank fails.

What You Need to Know

Your bank pays a fee to the Federal Deposit Insurance Corporation (FDIC). That fee feeds into a fund that will insure consumers in the even their bank fails. You are insured for $250,000 per bank per depositor. (A joint account is covered to $500,000 per bank) That is not $250,000 per account; it is $250,000 per bank. If you have $200,000 in savings and $60,000 in a CD, you are covered for $250,000, not the entire $260,000.