FAQs About US Bank Failure

Table of Contents

• Deposit Insurance
• What Happens When a Bank Fails 
• Resolution Options — Least-Cost Resolution
• Resolution Options — Systemic Risk Exception
• Resolution Options — Orderly Liquidation Authority
• Regulatory Tools to Evaluate and Monitor a Bank’s Capital Adequacy
• Bank Customers — Borrowers
• Bank Customers — Depositors
• Bank Counterparties and Creditors
• Bank-Fintech Partnerships
• Deposit Placement Programs

Deposit Insurance

1. Are the deposits at my bank FDIC-insured?
Deposits held at FDIC-insured depository institutions are insured up to $250,000 per depositor for deposits held in the same “right and capacity.” Please see item 2, “FDIC deposit insurance is based on the “right and capacity” in which a depositor holds a deposit. What does this mean?,” below.

Deposits carried on the books and records of a foreign office of a US bank, including those that are dually payable in the US or at a foreign office, are not FDIC-insured.

Deposits payable solely at a foreign office are not FDIC-insured, are not considered deposits of the bank for purposes of the Federal Deposit Insurance Act, and have a lower priority of payment in a receivership proceeding than the bank’s other deposit obligations.

Deposits at a foreign subsidiary of a US bank are not deposits of the US bank for any purpose and are not FDIC-insured.

2. FDIC deposit insurance is based on the “right and capacity” in which a depositor holds a deposit. What does this mean?
“Right and capacity” refers to the legal basis on which a deposit is owned. The ownership categories for determining right and capacity include:

• Single accounts
• Joint accounts
• Revocable trust accounts
• Irrevocable trust accounts
• Certain retirement accounts
• Employee benefit plan accounts
• Business or organization accounts
• Government accounts (public unit accounts)
• Accounts held by a depository institution as the trustee of an irrevocable trust

All deposits of a depositor within a particular ownership category are aggregated and insured up to the $250,000 limit.

Different legal entities, including affiliates, are generally considered separate depositors as long as they engage in “independent activity,” meaning the entity is operated primarily for some purpose other than to increase deposit insurance.

3. What should I do if I have uninsured deposits at a bank?
For information about best practices that companies should consider to ensure they manage their cash and investment risk effectively, please see our detailed piece about cash management and investment policies.

4. I have a money market account at my bank. Is it a deposit or a money market mutual fund? What’s the difference?
A money market deposit account (or money market savings account) is a type of deposit account. Funds held in a money market deposit account are deposit obligations of a bank.

By contrast, shares of a money market mutual fund represent an interest in a mutual fund and are not bank deposits. A bank may hold shares of a money market mutual fund as custodian for a customer; or the bank, acting as agent for the customer, may sweep deposits into money market mutual funds. If the relevant account documentation establishes that a bank is acting as custodian or agent, as applicable, for a customer, the customer should be able to claim that the customer is the owner of the mutual fund shares. You can determine whether you have a money market deposit account or are holding money market mutual fund shares by looking at account documentation and statements. A money market deposit account would typically be subject to a deposit account agreement, whereas money market mutual fund shares held by a bank for a client would typically be subject to a sweep or custodial agreement.

5. I have a money market mutual fund sweep agreement with my bank. What happens if my bank fails?
As long as the sweep agreement clearly establishes that the bank was holding mutual fund shares as the customer’s agent, the agreement should enable the customer to claim that it owns the money market mutual fund shares.

Customers who transacted in mutual fund shares in the days leading up to a bank’s failure may be holding deposit obligations of the bank and not mutual fund shares; it is common for funds in sweep account programs to remain at the bank overnight (or potentially longer, in the case of a weekend or holiday), pending settlement of the mutual fund trade. Funds swept out of deposit accounts at the bank prior to its failure for investment in money market mutual fund shares would be considered deposits if the trade did not settle with the mutual fund before the bank’s failure. Similarly, funds from a redemption of mutual fund shares occurring prior to the bank’s failure may be considered deposits.

6. Can I instruct the mutual fund company or its transfer agent to move my mutual fund shares purchased through a sweep program to another bank custodian or broker, or redeem the shares and send the funds to another bank?
No. Bank sweep programs are typically structured so that the bank holds the mutual fund shares as an intermediary, with ownership registered on the books of the mutual fund’s transfer agent in the name of the bank acting as agent and/or custodian. In this case, the mutual fund company and its transfer agent would not recognize the customer’s interest in the shares.

7. I have an investment management account with an investment adviser with custody at an affiliated bank. What happens if the bank custodian fails? What happens if I have been receiving investment advisory services from my bank?
If you entered into an agreement for advisory services provided by a registered investment adviser affiliated with a bank, the investment adviser must use a qualified custodian (e.g., a bank or broker-dealer) to hold your investments. Please consult your agreement to determine the identity of your custodian. If you entered into an agreement for advisory services provided by the bank, as long as the agreement clearly establishes that the bank was holding your investments as your agent, the agreement should enable you to claim that you own those investments. In either case, uninvested cash and new cash contributions to your account might be held at the bank. Please consult your agreement to determine how such cash is held. Cash held at the bank will be a deposit.

8. I have an overnight repo sweep arrangement with my bank. What happens if my bank fails?
In a properly executed repo sweep arrangement, the customer should have a perfected interest in government securities at the close of the bank’s business day and not a deposit obligation of the bank. However, there are two very important risks to consider:

• The FDIC generally respects a bank’s customary cutoff times for purposes of determining end-of-day deposit ledger balances. However, in its receivership rules, the FDIC has reserved the right to establish an earlier cutoff time, which means a repo sweep may not have been properly completed before the cutoff time in the event of failure. In addition, the time preceding a bank failure can be chaotic, which creates operational risk and the possibility that a repo sweep may not have been properly completed before the bank failed. Funds remaining at the bank that were not invested in securities under the repurchase agreement when the bank failed are deposits.
• Funds swept into repos are generally swept back to the bank the following morning, which would create daylight exposure if the bank were to fail while the funds are on deposit.

9. I’m holding funds in an account that is maintained “for the benefit” of customers or third parties. Is “pass-through” deposit insurance available?
A person acting as an intermediary for third parties and holding funds in a fiduciary, custodial, or nominee capacity for others in a deposit account at an FDIC-insured depository institution can use “pass-through” deposit coverage to increase the amount of available deposit insurance covering the account. Pass-through coverage means the FDIC will look through the nominal depositor and recognize the interest of each beneficial owner of the funds for purposes of determining the amount of deposit insurance available. For more details, please see our article about pass-through deposit insurance coverage.

These arrangements should be reviewed to ensure they meet all applicable requirements.

What Happens When a Bank Fails

10. What are the FDIC’s objectives in resolving a failed bank?
The FDIC is required by law to use the resolution method that is least costly to the FDIC’s Deposit Insurance Fund, or “least-cost resolution.” Resolution methods include purchase and assumption transactions, deposit insurance payout, shared-loss agreements, and the use of bridge banks.

As we saw in March 2023, however, the deposit insurance available to large depositors was insufficient to stem bank runs at a cohort of regional banks, raising broader concerns about risks to the stability of the banking system. Under these circumstances, the “systemic risk exception” permits the FDIC to take extraordinary actions. Please see “Resolution Options — Systemic Risk Exception,” below.

Finally, the Dodd-Frank Wall Street and Consumer Protection Act of 2010, as amended (Dodd-Frank Act), granted the FDIC authority to resolve large, failing financial institutions whose failure could destabilize the financial system outside of the Bankruptcy Code. This “orderly liquidation authority” has not been used since its adoption. Please see “Resolution Options — Orderly Liquidation Authority,” below.

Resolution Options — Least-Cost Resolution

11. How does the FDIC typically handle a bank failure?
When a bank fails, the FDIC will attempt to identify through a competitive bidding process an acquirer willing to assume the failed bank’s insured deposits and purchase as many of the failed bank’s assets as possible. The FDIC may use one or more of the following structures:

• In a basic purchase and assumption (P&A) transaction, the acquirer assumes the failed institution’s insured deposits but generally purchases only the institution’s cash, cash equivalents, and marketable securities.
• In a whole bank P&A transaction, the acquirer will assume the failed institution’s insured deposits and purchase all or substantially all of the institution’s assets, typically at some discount.
• In some cases, the FDIC may agree to loss-sharing with the acquirer, meaning the FDIC will agree with the acquiring institution to share losses on certain types of assets up to an agreed-upon limit. Please see item 13, “Will the FDIC share in losses with the acquirer of a failed bank?,” below.

The FDIC may combine these methods, meaning that it may enter into a basic P&A transaction with an acquiring institution that also agrees to purchase certain loan pools or other assets, or it may pursue a transaction that is closer to a whole bank P&A but separately market certain real estate or certain types of loans (such as construction loans) to other prospective purchasers.

When possible, the FDIC prefers to pursue a whole bank P&A or basic P&A with loan pools to maximize the franchise value of the failed institution and reduce the receivership estate’s ongoing administrative burden of holding and selling assets over time.

If the value of the assets being purchased does not equal or exceed the amount of deposits being assumed, the FDIC will pay the difference in cash to the acquiring institution.

If the cost of selling an institution to an acquirer in a P&A transaction is greater than a liquidation (e.g., because there are no bidders or the available bidders discount the failed institution’s assets too greatly), the FDIC will choose a deposit insurance payout and liquidate the institution.

Generally, the FDIC begins the process of evaluating its options for resolving a failed institution and receiving bids as an institution approaches failure. However, if an institution fails unexpectedly or resolution would be especially complex, the FDIC may use a bridge bank, which is a federally chartered insured depository institution that is chartered for the purpose of assuming the insured deposits and assets of a failed institution and continuing the failed institution’s ordinary business operations for a limited period of time until the FDIC determines the most appropriate resolution method.

12. What is the process to become a bidder?
FDIC-insured banks may be given the opportunity by the FDIC to bid on the acquisition of a failing institution. Banks qualify as bidders based on their location, total assets, capital levels, and regulatory ratings. A bank may also complete a prequalification request form to prequalify to bid in certain asset sales and be included in a pool of potential bidders. If the FDIC determines that a bank qualifies to bid, the FDIC will contact it. The contacted bank will then complete a Potential Bidder Contact Form. After completing a confidentiality agreement, a limited number of individuals associated with the contacted bank will be permitted to access information about the failing institution’s financial condition, transactions and operations, and legal documents. If a bank wins a bid, it then enters into a purchase and assumption agreement, and/or other relevant agreements, with the FDIC.

13. Will the FDIC share in losses with the acquirer of a failed bank?
Yes, in certain circumstances. The FDIC is permitted to absorb a portion of the loss on a specified pool of assets sold as part of the resolution of a failing bank if doing so would further the FDIC’s obligation to pursue a least-cost resolution.

In a shared-loss arrangement, the FDIC will cover a certain portion of credit losses (and certain other costs) associated with a portfolio of loans acquired by an acquirer. The FDIC has most commonly used such arrangements in connection with purchase and assumption transactions in which an acquirer is acquiring a majority, if not all, of the assets of the failed bank or bridge bank and is also assuming some, or all, of the deposit and certain other liabilities of the failed bank or bridge bank. The FDIC’s obligations to make payments under such arrangements are treated as administrative expenses of the FDIC as receiver.

The FDIC primarily uses two forms of shared-loss agreements (“SLAs”), one for commercial loans (as well as related real estate interests and capitalized expenditures) and one for single-family residential loans (also including related real estate interests). SLAs govern the acquirer’s management, administration and collection of the covered loans with the aim of ensuring that the acquirer seeks to maximize collections and minimize losses on the covered loans and specify the acquirer’s obligations for providing notices, reports and payments to the FDIC and obtaining its consent before engaging in certain transactions (e.g., loan sales) involving the covered loans.

The loss coverage provided under SLAs for commercial assets varies depending on market conditions, the geographic location of the covered assets, and the FDIC’s estimate of the total projected losses for them. SLAs for commercial assets are typically for terms of eight years; for the first five years, they cover losses and recoveries, and for the remaining three years they cover recoveries only. Commercial asset SLAs typically provide for 80% coverage of losses on covered loans and other assets, which coverage may be subject to a specified limit. Recoveries (e.g., collections on loans that the acquirer has “charged off” and income received by the acquirer from related real estate interests) are typically shared, with 20% of the recovery amount allocated to the acquirer and 80% to the FDIC. On a quarterly basis, the FDIC reimburses the acquirer for any covered losses when the acquirer writes down the affected assets in accordance with the acquirer’s ordinary credit policies and practices and applicable regulatory requirements or when the affected assets are sold.

For single-family residential assets, SLAs typically provide coverage for losses arising from three types of events involving single-family residential first lien mortgage loans: modifications, short sales, and when a property is sold after foreclosure. Loans insured or guaranteed by a department or agency of a federal, state or local governmental unit are not covered. Such SLAs are typically for terms of seven or 10 years, and provide the same 80/20 allocation of losses (sometimes up to a specified limit) and recoveries as provided under commercial asset SLAs, but a residential SLA may provide for the coverage of losses through the duration of the agreement. The FDIC reimburses the acquirer for any covered losses when the affected asset is modified or the property is resold.

14. Will the FDIC sell separate loan portfolios?
Yes. When possible, the FDIC typically prefers to pursue a whole bank P&A or basic P&A with loan pools. It does not ordinarily pursue sales of branches or other individual assets while a bank is failing. Once a failed bank has closed, however, the FDIC may seek to sell remaining pools of loans, real estate, and other assets.

Pools of loans sold by the FDIC typically have similar characteristics, such as loan size, type, performance status, collateral, and location, and acquirers are limited to those meeting certain eligibility requirements designed to, among other things, eliminate potential conflicts of interest in the transaction and preclude participation by financially irresponsible persons. In some cases, bidders are limited to FDIC-insured banks.

The FDIC uses a standard form of loan sale agreement and does not make representations or warranties concerning loans sold in a pool, but the FDIC does permit prospective bidders to access evaluation materials concerning the loans.

15. In what order does the FDIC pay the creditors of a failed bank?
In general, the order of priority is as follows:

• Secured creditors to the extent of their perfected security interest
• Depositors (including the FDIC to the extent it has paid deposit insurance claims or arranged for assumption of deposits)
• General creditors (including depositors holding deposits payable solely at a foreign office)
• Subordinated creditors
• Equity holders (e.g., parent holding company)

16. Does the purchaser of a loan portfolio from the receivership estate of a failed bank get any special rights that an ordinary purchaser of the loan would not have?
Yes, once the FDIC acquires an asset in its capacity as receiver for a failed institution, the FDIC benefits from provisions of federal law and judicial precedent providing that certain “agreements” that would act to diminish or defeat the FDIC’s interest in an asset cannot be enforced against the FDIC if such agreements were not approved, executed, documented, and recorded in the failed bank’s records appropriately. The asset is thereby cleansed of certain defenses of the borrower that may be asserted against the FDIC, and federal courts have routinely recognized that buyers of assets from the FDIC take free from these defenses as well. Federal law and judicial precedent does not protect the FDIC or its transferees or assignees from real defenses that render an obligation void, such as fraud in the factum. In some cases, the FDIC may contractually limit the rights of purchasers or assignees of assets from the FDIC to assert the FDIC’s statutory rights.

17. Can the FDIC provide funds or guarantees to troubled banks to keep them going rather than taking them into receivership?
Generally, no. Federal law authorizes the FDIC to provide certain forms of so-called “open bank assistance” in extremely limited circumstances, but the limitations on this authority mean that it has been used only sparingly since the early 1990s.

18. If a failed bank is state-chartered, does the FDIC have the authority to resolve it?
Yes. The Federal Deposit Insurance Act authorizes the FDIC to serve as conservator or receiver of FDIC-insured federal and state banks. Ordinarily, the FDIC is appointed as conservator or receiver by the applicable state supervisory authority. However, the FDIC has the authority to appoint itself as conservator or receiver when an FDIC-insured bank’s assets are less than its obligations to its creditors or the bank is likely to be unable to pay its obligations or meet its depositors’ demands in the normal course of business.

Resolution Options — Systemic Risk Exception

19. What is the systemic risk exception, and it is likely to be used again?
The systemic risk exception permits the FDIC to take action in certain extraordinary circumstances to resolve a failed insured depository institution, even if doing so would involve protecting depositors for more than the insured portion of their deposits or protecting creditors other than depositors, and even if such actions would not be the least costly method of resolving the institution.

To invoke the systemic risk exception, the Secretary of the Treasury, in consultation with the President, upon a written recommendation approved by a two-thirds vote of the FDIC’s board of directors and a two-thirds vote of the Board of Governors of the Federal Reserve System, must determine that compliance with the least-cost resolution requirement and the limitations on protecting uninsured depositors and other creditors “would have serious adverse effects on economic conditions or financial stability” and that other action or assistance would avoid or mitigate such adverse effects.

The FDIC is required to recover losses to the Deposit Insurance Fund arising from any action taken or assistance provided with respect to an insured depository institution under the systemic risk exception through special assessments on insured depository institutions, depository institution holding companies (with the concurrence of the Secretary of the Treasury with respect to holding companies), or both, as the FDIC determines is appropriate.

It is impossible to predict with any certainty whether or when the systemic risk exception may be used in the future. Depositors and other creditors of insured depository institutions should not assume that the systemic risk exception will be invoked in future bank failures.

Resolution Options — Orderly Liquidation Authority

20. What is the orderly liquidation authority?
The Dodd-Frank Act establishes a resolution regime for large, complex, systemically important failing financial institutions when an orderly bankruptcy under the Bankruptcy Code is not possible. Under this orderly liquidation authority, if the Secretary of the Treasury determines, following a recommendation from the Board of Governors of the Federal Reserve System and the FDIC, that the financial institution is in default or likely to default and the default would pose a systemic risk, the Secretary of the Treasury can grant the FDIC the authority to resolve the financial institution. The FDIC is permitted to wind down a financial institution only by liquidating the financial institution in a way that mitigates systemic risk and moral hazard.

Regulatory Tools to Evaluate and Monitor a Bank’s Capital Adequacy

21. What is "prompt corrective action,” and how do regulators use it to monitor capital adequacy?
Section 38 of the Federal Deposit Insurance Act requires the federal banking regulators to take “prompt corrective action” (PCA) to resolve the problems of insured depository institutions at the least possible long-term cost to the Deposit Insurance Fund. PCA refers to the framework established under the Federal Deposit Insurance Act for evaluating the capital adequacy of an insured depository institution and imposing restrictions on an institution’s activities and additional requirements as the institution’s level of capital adequacy declines. All FDIC-insured institutions are subject to the PCA framework.

Under the PCA framework, the banking regulators have established certain minimum levels for various capital measures to determine whether an institution is “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.”

An institution is considered “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.

Certain large banking organizations are subject to an additional supplementary leverage ratio requirement that can affect their PCA capital category.

A qualifying community banking organization (generally, an institution with less than $10 billion of assets that meets certain requirements) that has elected to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9.0% will be considered to be “well capitalized.”

An institution is not considered “well capitalized” if it is subject to any written agreement, order, capital directive, or prompt corrective action directive issued by its appropriate federal banking regulator pursuant to certain provisions of federal banking law to meet and maintain a specific capital level for any capital measure.

22. What limits apply to a bank’s activities based on its PCA capital category?
All insured depository institutions, including those that are well capitalized, are prohibited from making any capital distribution or paying a management fee to a person who controls the institution if, following the distribution or payment, the institution would be undercapitalized, except in very limited circumstances relating to a capital-raising transaction with regulatory approval.

Upon receiving or being deemed to have received notice that it is undercapitalized, an institution becomes subject to certain limitations that, for example, require that its federal bank regulator monitor the condition of the institution and its efforts to restore its capital, require submission of a capital restoration plan, restrict the growth of the institution’s assets, and require prior regulatory approval of certain expansion proposals. An institution that is required to submit a capital restoration plan must concurrently submit a performance guarantee by each company that controls the institution. Additional requirements apply to significantly undercapitalized institutions and undercapitalized institutions that fail to submit an acceptable capital restoration plan or to implement such a plan. An institution that is “critically undercapitalized” will be subject to further restrictions and generally will be placed in conservatorship or receivership within 90 days.

An institution’s PCA capital category also has implications that extend beyond those specified in the Federal Deposit Insurance Act. For instance, an insured depository institution may not accept, renew, or roll over brokered deposits unless it is either well capitalized or adequately capitalized and has obtained a waiver from the FDIC.¹ In addition, institutions that are well capitalized and meet certain additional criteria may qualify for certain expedited processing procedures in connection with applications and notices filed with the federal banking regulators.

Bank Customers — Borrowers

23. I recently entered into a loan modification with my bank. If my bank fails, will the FDIC or a third-party purchaser of my loan respect the loan modification?
If a loan modification is made in good faith, documented in writing, executed by the borrower and the bank, approved by the bank’s board of directors or loan committee (and documented in its minutes), and has been maintained continuously, from the time of its execution, as an official record of the bank, then such a loan modification would likely be recognized by the FDIC in its capacity as receiver. The FDIC has indicated that in such circumstances it would generally not invoke the provisions of federal law and judicial precedent permitting the FDIC to disaffirm certain “agreements” that would act to diminish or defeat the FDIC’s interest in an asset. Please see item 16, “Does the purchaser of a loan portfolio from the receivership estate of a failed bank get any special rights that an ordinary purchaser of the loan would not have?,” above.

A third-party purchaser of the loan may, however, seek to disaffirm a loan modification on the basis that the loan modification was not created contemporaneously with the creation of the loan.

The FDIC as receiver and any third-party purchaser of a loan can be expected to review any forbearance exercised by the failed bank or other improperly documented loan accommodations in place between the failed bank and its borrower and, depending on their assessment, terminate or modify such forbearance or accommodations.

24. If my bank has failed, can I stop making payments on my loan?
A borrower’s obligation to repay a loan is not relieved because the bank has failed and the loan has been temporarily retained by the FDIC or has been sold by it. If a borrower becomes delinquent on their loan, the FDIC can “set off” the borrower’s deposits against the loan with the failed bank before making payment on any insured deposits.

Bank Customers — Depositors

25. Will deposits continue to accrue interest after a bank fails?
Interest will stop accruing on all deposit accounts of a bank on the date it fails. FDIC deposit insurance will cover principal and interest that has accrued though the date a bank fails, up to applicable limits.

If a deposit is assumed by another bank, the assuming bank is responsible for reestablishing interest payments and, at that time, may set a new interest rate for the account. If the acquiring bank changes the interest rate paid on the account, the depositor may withdraw their insured funds without penalty.

Bank Counterparties and Creditors

26. I am in the process of suing a bank that has just failed. Is the litigation automatically stayed?
Not automatically, but the FDIC, as receiver, may request a stay — for a period not to exceed 90 days — in any judicial action in which the failed bank is or becomes a party, and the relevant court is required to grant such a stay as to all parties.

27. If I disagree with how the FDIC is using its powers as receiver, can I seek an injunction?
Generally, no. With limited exceptions, no court is permitted to take any action, except at the request of the FDIC’s Board of Directors by regulation or order, to restrain or affect the exercise of the powers or functions of the FDIC as conservator or receiver.

28. I am a service provider/landlord to a bank. Does the FDIC step into the shoes of the failed bank under my agreement? Can the FDIC repudiate my agreement?
When an insured depository institution fails, the FDIC as receiver has the ability to disaffirm or repudiate any contract or lease to which the failed institution was a party. The FDIC must determine whether or not to exercise its repudiation right within a reasonable period of time following its appointment as receiver for the failed institution.

Typically, the FDIC allows an institution that acquires assets and assumes deposit liabilities of the failed depository institution to decide within a certain period of time which service provider contracts and leases the acquirer will assume, following which the FDIC may repudiate the contracts that are not assumed.

In general, when the FDIC repudiates a contract to which a failed institution was a party, damages are limited to actual compensatory damages determined as of the date of the appointment of the FDIC as receiver. Special rules apply with respect to qualified financial contracts.

With respect to leases where the failed institution was lessee, the lessor is generally entitled to contractual rent accruing before the later of the date on which notice of disaffirmance or repudiation was mailed or the disaffirmance or repudiation of the lease became effective, and the lessor also has a claim for unpaid rent due as of the date the FDIC was appointed as receiver. However, the lessor is not entitled to claim damages under any acceleration clause or penalty provision under the lease.

If a service provider has a claim against the FDIC, it is important to file a claim against the receivership estate before the claims bar date, which is the date specified by the FDIC that is not less than 90 days after the FDIC publishes a notice to the closed institution’s creditors.

Allowed claims against the FDIC for repudiated contracts are general unsecured creditor claims against the receivership estate, and such claims rank behind claims of secured creditors, the FDIC’s administrative expenses as receiver, and claims for deposit liabilities (including claims of the FDIC to the extent it is subrogated to depositors as a result of paying deposit insurance or arranging for assumption of deposit liabilities).

Bank-Fintech Partnerships

29. I placed my deposits through a fintech. How do I know where my funds are located?
Consult your fintech’s user dashboard, its website, and your agreements with your fintech to determine where your fintech is holding your funds. If your fintech has not disclosed where your funds are located, you should contact your fintech for more information.

30. If my fintech’s partner bank begins to experience financial trouble, will the bank continue accepting my deposits or return them?
If your fintech’s partner bank is an insured depository institution that begins to experience financial trouble, it might stop accepting or return your deposits if your fintech’s activity makes your deposits brokered deposits. Please see item 22, “What limits apply to a bank’s activities based on its PCA capital category?,” above.

Deposit Placement Programs

31. I placed my funds through a deposit placement program to maximize deposit insurance. What happens if one of the banks that received my funds fails or starts to have financial difficulties? 
Deposit placement programs are designed to sweep funds out of a deposit account at your bank when the account balance exceeds a target threshold, and allocate the excess funds among deposit accounts at other banks in amounts up to $250,000 at each other bank. Assuming the deposit placement program is properly structured, the deposits at your bank and at each other bank should be eligible for separate FDIC deposit insurance coverage, up to $250,000 at each bank. The deposit placement agreement with your bank should address the treatment of funds “in transit” among participating banks.

If one of the other participating banks fails, your deposits held there should not exceed $250,000 and should be fully insured. We are not aware of the FDIC challenging a properly structured deposit placement program during a bank’s receivership. The deposit placement agreement with your bank should specify how you will be notified about a participating bank’s failure, how claims will be addressed, and whether any deposit insurance payments will be disbursed to you or placed with another participating bank.

Deposit placement programs typically allow you to exclude specific banks from receiving your deposits. This mechanism allows you to exclude banks you believe are at risk of financial difficulties, as well as banks where you already have a separate banking relationship. It is important to maintain a current list of exclusions, because deposits held at a particular depository institution in the same right and capacity will be aggregated for purposes of determining FDIC deposit insurance coverage. Please see item 2, “FDIC deposit insurance is based on the ‘right and capacity’ in which a depositor holds a deposit. What does this mean?,” above.

 

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^[1] A brokered deposit is a deposit that a bank obtains, directly or indirectly, from or through the mediation or assistance of a deposit broker. A deposit broker is a person engaged in the business of placing deposits of third parties, or facilitating placement of deposits of third parties, with banks. A person is “engaged in the business of placing deposits” or “engaged in the business of facilitating the placement of deposits” if it has a business relationship with third parties and, as part of that relationship, places or facilitates the placement of deposits with banks on behalf of the third parties, including by (a) depositing the third party’s funds at more than one bank; (b) having the authority to close the account or move the third party’s funds to another bank; (c) being involved in negotiating or setting rates, fees, terms, or conditions for the deposit account; or (d) engaging in matchmaking activities. Federal regulations enumerate a variety of exceptions to these rules, which are not discussed here.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee a similar outcome.