When banks fail: My experience with an FDIC takeover

Although I've been busy at work for the past couple of days, I've been itching to discuss the What Happens When a Bank Goes Out of Business post at The Finance Buff blog, which reminded me of my experience with a bank failure.

When I was in college, I had a checking and credit card accounts at the now defunct Bank of New England. I wasn't aware that they were having financial problems until I had my Bank of New England credit card rejected when I was making a purchase one day. Since I always paid my credit card bill in full each month, I attributed the rejection to a technical glitch and headed to the ATM machine at a nearby Bank of New England branch to withdraw some cash.

I began to realize that this wasn't just a technical glitch when my ATM card was also rejected and I had no way to get to my money. Once I got home, I saw the reports on the news about the collapse of the Bank of New England. To make things worse, this was happening not long after after the "RISDIC" banking crisis in Rhode Island, which caused a lot of people to lose access to their savings.

Much to my surprise, a few days later my local Bank of New England branch became a Fleet Bank branch and my credit and ATM cards worked! The FDIC did its job by stepping in and protecting depositors and facilitating the sale of the Bank of New England's assets.

The FDIC has a pdf document discussing the Bank of New England situation, which makes for interesting reading. What is particularly interesting is that the FDIC decided to protect depositors whose balances exceeded the $100,000 FDIC insurance limit:

In addition to being very large, the resolution of the BNE Corp. banks is notable because the FDIC, considering the region’s financial conditions, decided to protect all depositors (except those affiliated with BNE Corp.), including those whose total deposits exceeded the $100,000 insurance limit. Of the approximately $19.1 billion on deposit in the three banks, more than $2 billion were in accounts larger than $100,000. Then-FDIC Chairman L. William Seidman stated, “It was clear to us that to protect the stability of the system, we should protect all depositors.”