Thanks to the overhaul of financial rules becoming law Wednesday, the Federal Deposit Insurance Corp. can truthfully say "the check is in the mail" to about 9,500 customers of banks that failed in 2008.
The agency plans to mail depositors roughly $200 million Thursday.
The maximum the FDIC would insure in any single deposit account was raised from $100,000 to $250,000 at the height of the financial crisis in October 2008, as part of the $700 billion rescue package.
The law President Barack Obama signed Wednesday makes the higher cap permanent, retroactive to Jan. 1, 2008.
Pushing the effective date back to the beginning of 2008 gives about 9,500 customers of six banks that failed between Jan. 1 and Oct. 3, 2008, whose accounts held between $100,000 and $250,000 more money than they would have received. The FDIC said about 500 remaining customers' accounts held more than $250,000 per depositor, and they still aren't covered for that excess money.
The FDIC covers up to $250,000 per depositor per bank, including individual retirement accounts, or IRAs. Joint accounts are insured up to that amount for each co-owner of the account.
The six banks covered by the retroactive cap increase include California-based IndyMac Bank, which collapsed in July 2008 with about $30.2 billion in assets — one of the biggest bank failures in U.S. history. The other five are Hume Bank of Hume, Mo.; ANB Financial, which was based in Bentonville, Ark.; First Priority Bank in Bradenton, Fla.; Columbian Bank and Trust Co. of Topeka, Kan.; and Silver State Bank in Henderson, Nev.
For any money in a failed bank's deposit accounts that exceeds the insured limit, the depositor essentially becomes a creditor of the bank. People can eventually recover some, but the amount can range as low as 40 cents on the dollar and the process can take months.
There have been 236 bank failures since the start of 2009; they have succumbed to the recession and mounting loan defaults.
The pace accelerated as banks' losses increased on loans made for commercial property and development. The number of failures this year is expected to be slightly higher than 2009's 140, the highest annual tally since 1992, at the height of the savings and loan crisis. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three fell in 2007, but 96 have failed so far this year.
The failures have drained billions of dollars from the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.
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