Meltdown 101: What to Know If Your Bank Fails

Dozens of banks have failed this year. What do you need to know if yours is next?

FILE - In this July 15, 2008 file photo, Robert Brown FDIC ombudsman distributes forms for people to...

FILE - In this July 15, 2008 file photo, Robert Brown FDIC ombudsman distributes forms for people to fill out before getting their money back outside IndyMac Bank in Encino, Calif. Some 200 anxious, embittered and sometimes angry customers swarmed an IndyMac bank branch creating a Depression Era-like scene in the city's San Fernando Valley, as they demanded their money back. (AP Photo/Nick Ut, file)

(AP)

The number of bank failures has reached 115 since January — more than four times the total for 2008 and the most since the savings and loan crisis in 1992. And most experts expect problems caused by unpaid loans to force many more closures in the coming years, mostly among small, community-based banks.

Banks are typically shut down late Friday afternoon. That gives the Federal Deposit Insurance Corp. time over the weekend to handle the shutdown, which most often involves transferring deposits to another bank that is taking over the failed institution. The first sign of failure consumers see may be a closure notice on the bank's door.

The impact of the bank failures on consumers has been minimal, but rumors about what can happen are rampant. The FDIC has also warned of dozens of scams that try to take advantage of consumers who don't understand the process.

So what do bank customers need to know, in case their bank goes under?

Here are some questions and answers.

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Q: Why would a bank be closed by regulators?

A: State or federal regulators can decide to close a bank if it is in danger of being unable to meet its obligations to depositors and others — basically, if it looks like it's going to run out of money.

Most of the banks closed in the past year have suffered because the housing crisis and the recession have led consumers and businesses to stop paying off mortgages, credit cards and other loans. Banks must set aside money to cover such losses, and they become unstable if these reserves fall.

Q: How does a customer know if a bank is covered by FDIC insurance?

A: Banks usually have a sign on the door with the FDIC logo, and also frequently use the logo on account statements and other correspondence.