What happens when a bank or credit union fails

A bank is closed by its chartering authority — the Office of the Comptroller of the Currency for national banks, or the state banking regulator for state-chartered banks — usually because it has run out of capital or cannot meet its obligations. The FDIC is then appointed receiver. Closings have traditionally happened at the end of the business week, often on a Friday, to give the FDIC the weekend to prepare, although in a fast-moving crisis a bank can be closed at any time.

The FDIC's job as receiver is to protect insured depositors, then to sell the bank's assets and pay creditors in the order set by law. It resolves failures in one of two main ways.

In a purchase and assumption (P&A), a healthy bank buys some or all of the failed bank's assets and takes over its deposits. This is the most common resolution. For customers it is usually undramatic:

• Branches typically reopen the next business day as branches of the acquiring bank.
• Accounts transfer automatically. Debit cards, checks and direct deposits generally keep working during the transition.
• The acquirer may later change account terms. CD rates can be reset; if that happens, depositors generally may withdraw without penalty.

Sometimes the acquirer takes on all deposits, including uninsured ones. In other cases it assumes only insured deposits.

When no buyer is found, the FDIC pays insured depositors directly, either by check or by opening an account in the depositor's name at another insured bank. The FDIC aims to make insured funds available quickly; for most depositors with straightforward accounts, payments have historically begun within a few business days of the closing, and in many cases the next business day. Accounts that need more documentation — certain trust accounts or deposits placed through brokers and fintech platforms — can take longer, because the FDIC must confirm who owns the money.

Money above the insurance limit is not lost automatically, but it is no longer guaranteed. The uninsured depositor receives a receivership certificate — a claim against the failed bank's estate. As the FDIC sells the bank's assets, it pays dividends on these claims. Federal depositor-preference law puts domestic depositors ahead of general unsecured creditors, so uninsured depositors often recover a large share of their money, but the amount and timing depend on what the assets fetch and can take months or years.

In March 2023, the government invoked a "systemic risk exception" to protect all depositors, including uninsured ones, at Silicon Valley Bank and Signature Bank. That was an exceptional decision, not a standing policy. See uninsured deposits explained.

• Loans: borrowers must keep paying. Loans usually transfer to the acquiring bank or are sold later by the FDIC; you will be notified where to send payments. A bank's failure does not cancel a mortgage or car loan.
• Lines of credit: unused credit lines may be reduced or cancelled by the receiver or the acquirer.
• Checks and automatic payments: in a P&A they normally continue. In a payoff, outstanding checks may be returned, so update direct deposits and automatic payments promptly.
• Safe deposit boxes: the contents are not insured but remain your property. The acquirer usually takes over the boxes; otherwise the FDIC gives instructions for retrieving the contents.
• Investments sold at the bank: securities you own in a brokerage account are not bank assets; they are not insured by the FDIC but are also not part of the receivership.

When a federally insured credit union fails, the NCUA handles it. The agency may place the credit union into conservatorship and operate it while seeking a solution, arrange a merger or purchase and assumption by another credit union, or liquidate it and pay insured members directly from the National Credit Union Share Insurance Fund. In a liquidation, uninsured amounts are handled through the liquidation estate, much like a bank receivership.

• Keep balances within insurance limits at each institution, using separate institutions or ownership categories if needed.
• Keep an emergency buffer at a second institution so a short disruption does not affect bill payments.
• Know your institution's legal name and FDIC certificate or NCUA charter number, which you can find in our state directories.

For a list of failures with dates, acquirers and estimated costs, see our failed bank list.