Your Bank Has Failed: What Happens Next?

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

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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.

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.