The failures of banks like Silicon Valley Bank and others have sent shockwaves through the financial world. If you have a loan, whether it’s a mortgage, car loan, or some other form of credit, it’s completely natural to feel anxious. The idea of a bank collapsing is troublesome, to say the least.
We’re shedding light on what happens when your bank fails and, most importantly, how it impacts your loans and financial obligations.
What Are the Key Notes About Banks and Loans?
If you’re feeling anxiety about your loans in the wake of recent bank failures, take a breath. While the situation is concerning, it’s important to know there are systems in place to protect borrowers.
Here’s a breakdown of the essentials about banks and loans.
1. The FDIC Has Your Deposits Covered
The Federal Deposit Insurance Corporation, or FDIC, is a key player in the banking system. It’s a federal government agency created to inspire confidence in banks. Its birth came following the Great Depression, which saw the largest number of bank runs in U.S. history. The FDIC’s primary job is to insure deposits at each FDIC-insured institution.
This means that if your bank fails, the FDIC guarantees your savings up to a certain limit (currently $250,000 per depositor, per bank, per ownership category). However, it’s important to understand that this insurance coverage doesn’t include your loans.
Note, too, that credit unions have their own version of the FDIC, called the NCUA, or National Credit Union Administration. Many of the same safeguards are in place to ensure your deposits are protected.
2. Loans Don’t Disappear
Think of your loan as a contract. That contract still holds weight, even if the original bank is gone. You are still legally obligated to repay the debt, and the terms of your loan — things like the interest rate and payment schedule — don’t get wiped out by a bank failure.
3. Expect a New Bank, Not New Terms
While the bank holding your loan might change, your loan agreement shouldn’t. In most cases, a bank failure will trigger one of a few scenarios:
- A healthy bank might buy out the failed bank, including its loans. If this happens, you’ll likely get a letter from your new bank, and your loan terms stay exactly the same.
- Sometimes, the FDIC can’t find a buyer right away. They might create a temporary bank to hold things together until a buyer is found. You’ll still make payments when this happens, and your terms remain unchanged.
Regardless of the specifics, you’ll generally be notified by either the FDIC or the new lender with instructions about where to send future payments. Your loan terms shouldn’t change due to the bank closure.
Bank failures might be unsettling, but your loan obligations and terms generally aren’t going to change suddenly. The FDIC and other regulators work to prioritize stability for borrowers, aiming to minimize disruption.
What Happens When a Bank Fails?
The idea of banks or credit unions failing can feel like the rug being pulled out from under you financially. However, knowing what usually happens behind the scenes when a bank closes can lessen some of that anxiety.
While every bank failure is slightly different, there are three common scenarios to be aware of:
The “Healthy Bank” Takeover
The most seamless outcome is when a financially strong bank steps in and acquires the failed bank. Think back to the financial crisis of 2008 when Washington Mutual failed. JPMorgan Chase quickly scooped up this bank’s assets. This type of takeover protects deposit accounts and can minimize disruption for borrowers like you.
If this happens, you can expect a fairly smooth transition. You might notice a new name on your bank statements and maybe even some branch rebranding, but everything else will generally stay the same.
Your personal loans, credit card terms, payment schedules, and everything you’re used to should continue uninterrupted. You’ll receive a notice in the mail from the acquiring bank detailing where to send future payments.
The FDIC Steps In
Sometimes, the FDIC can’t immediately find a bank to buy out the failed financial institution. In situations like this, they might step in temporarily to keep things afloat. They’ll essentially create a “bridge bank” to manage the transition.
For example, this happened with Silicon Valley Bank’s failure. Your loans and payments don’t go on hold — the FDIC wants things to operate as normally as possible to avoid causing panic.
You’ll continue making regular payments, and your loan terms remain unchanged. Just make sure to follow the FDIC’s instructions on where to direct those payments.
Divide and Conquer
In more complex cases, the FDIC might break the failed bank up and sell off its assets piece by piece. Maybe one bank is interested in mortgages, another in checking and savings accounts, and yet another might specialize in commercial loans or business credit cards.
If your loan is part of an asset sale, you’ll still be responsible for paying it back as agreed, but your lender will change. Be on the lookout for communication from the new institution acquiring your loan — they’ll let you know where to send payments and answer any questions you might have.
The FDIC’s primary goal is minimizing disruption for depositors and borrowers. Whether your loan is absorbed by a new bank, managed by an FDIC-run bridge bank, or sold off, changes to your loan terms are very unlikely. The most important thing you can do is stay informed and responsive to any official communication you receive.
What Are Proactive Steps To Stay Informed?
The uncertainty surrounding a bank failure can feel overwhelming. However, knowledge is power. Taking a few proactive steps can help you feel more in control, ensuring you’re ready to handle any changes as they come your way.
1. The FDIC Is Your Ally
Consider the FDIC your go-to resource for reliable information in a bank failure situation. Their website is constantly updated with clear information about failed banks and the transition processes.
They also have dedicated pages for borrowers, where you can find answers to common questions about how your loans are affected. Check their site frequently, especially in the days following a bank closure, for the most up-to-date insured deposit information.
2. Communication
Whether it’s an FDIC-insured bridge bank or a new lender that acquires your loan, expect clear communication outlining the next steps. Keep a careful eye on your mailbox and email inbox for official notices.
These communications will be critical — they’ll let you know exactly where to send payments going forward. Don’t ignore these letters or emails. Respond promptly with any questions you might have to ensure a smooth transition.
3. Don’t Panic
It’s tempting to act rashly out of fear, considering dramatic options like withdrawing all your cash or trying to pay off your loan immediately. Resist that urge. The FDIC and other banking regulators work hard to make things as smooth as possible for borrowers.
Hasty decisions can do more harm than good — your money might be better used elsewhere in these uncertain times. For instance, you might need that liquidity to cover unexpected expenses during the changeover.
Instead of panic, focus on measured action. Gather information, read the communications carefully, and then consider your options with a clear head.
Additional Tips
In situations like this, it’s important to focus on what you can control. While you can’t prevent a bank from failing, you can take steps to minimize the fallout. Here are a few essential tips to protect yourself:
Document Everything
Keep copies of your loan statements, payment records, and any official correspondence you receive about the bank failure. This information could be valuable later on, especially if you need to file an insurance claim.
Ask Questions
Don’t be afraid to reach out to the FDIC or your new lender if you have any uncertainties about your loan. They have hotlines and resources dedicated to helping borrowers deal with these situations. Be prepared to provide your outstanding loan details and account information.
Watch Out for Scams
Unfortunately, scammers might try to take advantage of the chaos surrounding bank failures. Be wary of anyone claiming to be from your failed bank who asks for sensitive information, pressures you into immediate action, or promises unrealistic returns. If something feels off, contact the FDIC directly using their official contact information.
In the midst of uncertainty, the best course of action is to stay informed, communicate proactively, and make level-headed decisions. By trusting reliable sources like the FDIC and taking a measured approach, you can manage a bank failure with minimal disruption to your finances.
What Are Gold IRAs?
Recent bank failures have shaken people’s confidence in the traditional financial system. The situation feels even more precarious for those already wary of the stock market’s volatility and distrustful of institutions they can’t control. This leads many to seek alternative ways to secure their financial future, and precious metals like gold are gaining attention.
A Gold IRA is a specialized type of Individual Retirement Account (IRA) that allows you to hold physical gold, not just gold-related paper assets. Just like a traditional IRA, contributions can be tax-deferred or made with after-tax dollars (in the case of a Roth IRA).
Gold IRAs have specific IRS rules and regulations, so working with a company that specializes in setting them up is important.
Why the Shift Toward Precious Metals?
When so much about the financial world feels out of your hands, looking for assets you can control is natural. Unlike the numbers on a screen, precious metals offer a tangible form of wealth, and their history as a store of value provides a sense of security.
- A Tangible Asset: Unlike stocks, bonds, or cryptocurrency, gold is a physical asset with a long history as a store of value. Its tangible nature offers a sense of security that digital assets and paper investments can sometimes lack.
- Limited Supply: Gold has a finite supply, which helps contribute to its perceived value. You can’t print more gold like the government can print money, making it potentially less vulnerable to inflation over time.
- Uncorrelated to the Stock Market: Gold’s price tends to move independently of the stock market, making it a potential hedge when traditional investments are taking a hit.
Whether you’re looking to diversify your portfolio, hedge against inflation, or simply seek a tangible asset that offers a sense of security, precious metals may hold a place in your financial strategy. If you believe that stability and ownership are as important as potential returns, exploring a Gold IRA could be a valuable next step.
How American Hartford Gold Can Help
At American Hartford Gold, we understand that the world of precious metals and retirement accounts can feel complex. Our mission is to streamline the process and empower you to make confident decisions about your financial future.
Here’s how we can help:
- We guide you through the selection and purchase of IRS-approved physical gold coins and bars that can be held in your Gold IRA.
- We partner with trusted custodians to make setting up a self-directed Gold IRA seamless. Our specialists provide assistance throughout the process.
- Our goal is to make you an informed investor. We offer a wealth of resources and personalized advice to help you make confident decisions about your precious metals portfolio.
While we help you acquire the physical gold, American Hartford Gold does not directly manage IRAs. The IRA account itself is held and administered by a custodian of your choosing.
It’s important to remember that a Gold IRA isn’t meant to replace your traditional retirement savings entirely. It’s a potential way to diversify your holdings and add a hedge against uncertainty in conventional banking and financial systems.
American Hartford Gold: The Choice of Stability
A Gold IRA might be a worthwhile strategy if you’re concerned about bank failures, inflation, or potential volatility. Adding a precious metals component can strengthen personal finances and create a sense of stability during turbulent times.
At American Hartford Gold, we want to empower you to protect your retirement savings. We believe that knowledge and diversification are essential in the modern era. If you’re exploring the possibility of precious metals as a hedge against uncertainty, we’re here to help. Reach out today to discuss what we can do for you.
Sources:
FDIC: Deposit Insurance FAQs | FDIC
A Brief History of U.S. Bank Runs | American Deposits
How Long Should You Keep Your Bank Statements? | Investopedia
