Your Bank Has Failed: What Happens Next?

60 Minutes Gets A Rare Look At How The FDIC Takes Over Banks And Reassures Depositors

(CBS)  This story was first published on March 8, 2009. It was updated on May 27, 2009.

A lot of people are worried about their banks these days. Devastated giants like Citigroup get bailed out again and again and again. Recent stress tests show some banks need billions more, and many smaller banks are failing. The federal agency that takes over unsound banks is the Federal Deposit Insurance Corporation - the same people who guarantee depositors won't lose their money.

Most every Friday night now the FDIC is seizing several banks. You haven't seen these takeovers happening because they're done secretly at night to make sure there's no needless panic by depositors.

But earlier this year, when this story was first broadcast, 60 Minutes and correspondent Scott Pelley were given extraordinary access to one of these operations because the FDIC wants you to know what happens to your money when your bank has failed.

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A team of FDIC agents prepared to seize a bank outside Chicago. They checked into a hotel under a fictitious name, "CB and Associates," to prevent a run on the bank. They didn't want anyone to know who they are or why they were in town.

Cheryl Bates and Arthur Cook are in charge of the operation that had been given the code name "HAPPY," strange considering what they were about to do.

"Do not discuss outside this room, what is going on, what we're here for," Cook instructed team members in a meeting at the hotel. Cook is the receiver-in-charge for the FDIC, who will take control when the bank is shut down. Bates is the closing team manager.

They're there to seize all five branches of Heritage Community Bank, a 40-year-old Illinois bank providing savings, student loans, mortgages and checking. But like so many others recently, it made ruinous bets on real estate.

Sheila Bair, chairman of the FDIC, told Scott Pelley 25 banks had failed in 2008.

Asked how many she expected to fail in 2009, Bair said, "It's going up. There have been 16 already now. And, so our loss projections are going up. We're having to increase premiums on banks to address the loss projections going forward. It's a very distressed environment right now."

"I wonder if you have a number in mind for how much the FDIC is prepared to pay for bank failures in 2009?" Pelley asked.

"We make a five year projection that for the next five years we will lose $65 billion on bank closings," Bair explained.

Some of that was about to be spent on the imminent failure of Heritage Community Bank. It held 12,000 deposits totaling more than $200 million. The FDIC team waited for the last customer to leave, and Cheryl Bates prepared to go in.

Asked what sorts of specialists were part of the FDIC team, Bates said, "We have accountants, we have asset specialists who specialize in loans, we have people who specialize in just the physical facilities. And we have a group of investigators that come in and do a review on the reasons of the bank failure."

Their whole team could run the bank.

Four months earlier, the FDIC and state of Illinois ordered the bank to stop risky lending and increase its cash, but Heritage couldn't find new investors. The night of Feb. 27, no one at the bank knew the end was minutes away.

[IamAmi1]

Scott Pelley's "interview" with Ben Benanke was a warm fuzzy for those who believed the puree that was served in place of the advertized steak. What a lot of hot air! Not a word of responsibility. Bernanke is as good as Hank Paulson, Bush, and the rest of them. Mush! The one sentence explanation of what happened to Lehman Bros. was so brief and went by so fast I couldn't catch it.. It seems that it is the same old thing - the rich get richer and the poor get poorer and the high and mighty get golden parachutes AFTER receiving bailout money. Who do they think they are fooling. Taking back Mr. Thaine and Mr. Foul's golden parachutes would be a good place to start..The US government doesn't have a penny and China holds ever larger loans to the US. These people reture to one or two or three or four mantions while we don't have the money to build schools or care for the poor. Bernanke isn't stressed out. He knows that all he needs to print more and more money and dig deeper into the milddle class' pockets.Change? I won't hold my breath.

[brpardo]

Your feature on bank failures was disturbing! Some smaller banks here in Las Vegas have been taken over by The FDIC and immediately sold to other banks. Depositors were not hurt. Your feature conveyed an element of panic rather than reassurance. You need to follow up with your viewers with some positive assurances.

[geminispyder-2009]

Why was there no mension of stock holders?If bank is liquidated you would
think your out of luck but another investor takes over do they honor those
stock holders?why wasnt that covered.
Posted by astepabove at 4:50 PM : May 31, 2009

Because FDIC stands for "Federal Deposit Insurance Corporation" not "Federal Stock Holders and Investors Insurance Corporation".

Securities Investor Protection Corporation is the one you want to look at as far as investors are concerned.

[TONYMAG1314]

MUST SAY GOOD START. YOU ONLY SCRATCHED SURFACE OF FDIC DOINGS IN BANKS CLOSINGS/TAKEOVERS.
THEY ALSO SELL OFF ASSETS WHEN THEY HAVE NOT SOLD THE BANK AND IT STAYS CLOSED. SOMETIMES AS LOW AS 10 CENTS ON THE DOLLAR. EXPLAIN WHY FDIC IS ALLOWED TO SELL A PROPERTY WITH AN 8,000,000 MORTGAGE FOR $310,000. THIS IS NO TYPO I TYPED $310,000 FOR A PROPERTY WITH AN 8,000,000 MORTGAGE. AND EVEN MORE FRIGHTENING THEY SOLD IT TO A MUNICIPALITY. HOW MANY OTHER PROPERTIES WERE GIVEN AWAY BY THE FDIC AND ALSO THE RTC IN IT'S SHORT LIVED PERIOD WHEN THEY HAD SAME POWERS AS THE FDIC? I HAVE THE WHOLE STORY AND IF YOU WANT TO HEAR IT CONTACT ME PLEASE OR CALL AT 561 703 6764

I watched Scott Pelley tonight, great show. I am so sorry that his face lift is so obvious. Sue the plastic surgeon.

[astepabove]

Good story on the fdic but everybody knows your money is safe up to 250k,
Why was there no mension of stock holders?If bank is liquidated you would
think your out of luck but another investor takes over do they honor those
stock holders?why wasnt that covered.

[cbsnewscomme]

http://my.nowpublic.com/world/w-house-knows-700b-bankbailout-and-787b-stimulus-scam-fraud.....

[wamucoupDotCom]

Looks like the real story about how well the FDIC does is about to come to light... and not a moment too soon. The court filing has been made!!!

"WMI_v_FDIC_Complaint, March 20, 2009, WMI files suit against the FDIC for seizure of the WaMu bank, 39 pages."

Do a story on that 60 minutes ..... maybe it will take more than an hour to research it though.

Here's a link to the court document for thos that are interested:

http://www.wamu-shareholders-resources.com/WMI_v_FDIC_Complaint.pdf

Now maybe the government crooks will get their 15 minutes (means you Sheila!!).

[worthbanner]

In the case of Indymac, first the Office of Thrift Supervision permitted bank officials to cook the books so they could continue to take deposits right up until the FDIC took over the bank . Then the FDIC paid out HALF of their deposits to 10,000 of Indymac's depositors and said "wait for the rest--we'll sell the assets." Then the FDIC made a deal with private interests to sell them Indymac's assets with no expectation of any further payments to those depositors (but of course the FDIC will get its money back). The net effect is the FDIC seized a billion dollars of depositor money and is giving it to the buyers of the bank. This is wrong and the Treasury Department or Congress need to make it right.

Worth

[JuneMG]

Where's the meat? The 60 minute story about the FDIC takeover of US Banks is about as relevant to what really happens in the bank failures as a piece on the terrorist's flight menu before they hit the twin towers. Please! It's an insult to the 10,000 robbed depositors at Indymac and other Americans that had their books 'cooked' and lost over 240 million when the FDIC was in collusion with banks like Indymac. Depositors were lied to when the banks set up their accounts, signature cards were lost and then they got a letter from the FDIC that their money was gone. It was a true hit and run story. Unlike your fluff piece the gut of the story is how this group of ordinary people (widows, mothers, teachers and grandparents) led by several depositors like Lisa Marshall and Cheryl Hodgson, have set up their own website, do their own investigating and report the real story including an interview on Good Morning America and articles in the the LATimes. I suggest you check out their work on indymacdepositors.com and learn something. 60 minutes needs to stop cheerleading the bad guys, pick up the ball and get back into the game. You're suppose to take on the tough stories and expose the truth. You're 60 minutes for G-d's sake!

[wamucoupDotCom]

Just really surprises me that the Washington Mutual debacle was completely left out of this story. If Scott Pelly is a real journalist then he wouldn't just accept the 'party line' hook line and sinker. Sheila Bair made big mistakes at almost every juncture but he didn't give her any of the tough questions. He didn't expose the 'cozy' little circle of 'old boys' (and girls) and how they hide the truth and do each other favors to cover up each others incompetent actions and/or theft. Who pays? You and I, the american people. Bair saved us taxpayers money? What an explicative joke. Her actions and the FDIC, and it's little 'lap dog', the OTS, were the the "straw that broke the (stock market) camels back" and cost us ALL dearly. Just look at the evidence -

http://wamustory.com

- Did Scott even investigate this story really? Its a fine reflection on American society when the only place you can get a real story is from Comedy Central and where the supposedly 'real' journalist miss the BIG STORY time and time again in favor of explicative propaganda. Perhaps JP Morgan has more influence than just their advertising dollars.

PS: for all those that read this and want to engage me in the simplistic propaganda retorts... don't bother ... I've looked at them all and they are just that. Go do your research... then maybe we can argue.

[ken8609]

According to Blair the FDIC is funded by insurance premiums paid by banks and is backed by the US Government. However, in yesterdays Boston Globe it states that the FDIC is looking for $500 Billion to cover failed banks. From 1996-2006 Congress did not collect insurance from the banks. Now in struggling times the FDIC doesn't have the money to cover their costs thanks to Congress not demanding that the banks pay their premiums. President Bush raised the FDIC cap from $100,000 to $250,000 (temporary until 12/31/2009) per individual. Now where did he think the money would come from when the banks failed and the FDIC doesn't have the money to fund it? Taxpayers once again have to shell out more money for our government's oversight.

[booker12]

I saw your program on the FDIC takeover of Heritage bank. There was information that was misleading (from the FDIC). This particular takeover may of gone the way they described it, however, you should look into the January 2009 FDIC takeover of The Bank Of Clark County in Vancouver Washington. This takeover did not go as they described on your program. Companies with financing through The Bank Of Clark County lost all financing, the loans did not go with the bank that purchased The Bank Of Clark County and were not insured by the FDIC (as they stated on your program) for 80% so the purchasing bank could only lose 20% on failed loans. The loans were bundled up and sold to the highest bidder and then the FDIC contacted the companies whos loans were sold and told them they better get new financing or their companies would be liquidated to repay the loans. I know this because my brother's company (that I work for) was one that was given just over 2 months to come up with new financing or lose everything after 33 years of business. This effected about 1,000 businesses in the area. I wish you would look into this and make people (companies) aware, they may not be safe if they have financing through a bank that is being taken over by the FDIC.

Sincerely,

Tod A. Braunwart

[pwb09]

After seeing House of Cards recently I think it is obvious that it was Moody's and S&P that caused the current mess by giving Junk Bonds Triple A ratings. If they had been given appropriate ratings few people or governments would have bought them and there would have been no pressure to create so many worthless mortgages. Whether it was stupidity. lunacy, collusion, pressure from the government or what, there has to be a thorough investigation and the perpetrators of this "world wide fraud" should be exposed. With all of the misery that they have created I can't think of a punishment severe enough.
Yet, no one ever mentions the rating agencies or drags them before congress to answer for their malfeasance. And, they are the ones that need more regulations and oversight.

[ffejognor]

I enjoyed the information on Heritage bank and the FDIC position however, I do wish you would have touched on the GSA'S, Freddiemac and Fanniemae involvement in bank foreclosures with there lending habits which was just as bad as the banking industries. In the same Chicago area the National Bank of Commerce was closed by the FDIC not because of bad loans but because of investing in the GSA's which was encouraged by the goverment to keep housing lending funds going. The Bush administration indicatated there was a problem as far back as 2001 however, Dem. Barney Frank kept defending the GSA's even after book keeping irregularilites were found with these institutions. Like Clinton & Frank say loosen loan requirements so everybody can own a home even if they don't have a job. Both should be ass-hamed and Frank should step down now!

[TN1961]

Scott Pelley missed or just chose to fail to mention the AFP article just published Thursday, March 5, 2009. The same Sheila Blair, head of the FDIC, who in her 2008 interview told Mr. Pelley the FDIC will not go broke, is now warning that due to the mounting bank failures, that the FDIC could "become insolvent" this year.

The FDIC's insurance fund seriouly depleted from the 3rd quarter to the 4th quarter 2008, dropping from 34.6 billion to 19 billion. If in one quarter alone, the FDIC lost over half of its insurance fund, how could Ms. Blair with a straight face and in any good moral conscience, state to Mr. Pelley the FDIC will not go broke?

In an effort to hopefully keep the insurance fund from going broke, the FDIC is increasing bank fees. This of course, will be passed on to and paid by bank customers.

I realize this interview was shot in 2008. However, it is irresponsible and negligent journalism, on the part of Scott Pelley and of 60 Minutes to not have followed up the aired interview with this just published article and reversal of statement made by the FDIC's Sheila Blair.

[bige166]

I have been watching these stories with great interest, and am very uncomfortable about my money in my 401k, which I carefully built up for my retirement,(i'm retired) and have watched it shrink (20k so far) and no one in this government is worried about me and my life-time savings. they are concerned about the LOOSE-LENDING instittutions, who were allowed (government regulations) to loan money for morgages to un credit worthy borrowers, and now they want me and you to FUND their loses. let them fail and let's move on, I do noit sympathize with any of them, I spent 50 years to get here, and the gov't now wants me to finance their inefficiecy. we need to rebel, BOSTON TEA PARTY STYLE.

[banker666]

TexasEd/ what world do you live in. idiotville/ or Texas? Both places are a joke just like your comment. He is trying to correct this mess that the Bushes made. Wake up

[belderdonaldr]

This was a 60 minutes investigation / news story? It was in fact the biggest propaganda episode ever produced by the US government. We are to believe this was a secret until 60 Minutes found out. All positive comes from bank take overs Americans, you have nothing to worry about. Has the US Government taken over your show now too. Let's get real!!!!!

Don Raleigh, NC

[samvs]

I thought story was interesting and informative BUT incomplete. I wanted to know what happened to the managers who made the bad decisions that caused the bank to fail! Did they walk away with a golden parachute? I understand how FDIC works so am not worried about my deposits nor do I bank with this particular one and most of the info seemed geared to reassuring those 2 constituencies. An information need serving a larger audience could be filled by telling the rest of us that those in power were held responsible and experienced consequences to their actions. I think many people are hungry for this kind of information because we hear so much about innocents being harmed and ineffective managers being rewarded. Would really like to see a followup on this story!!