Gramps could go any minute, but banks only fail on Fridays, giving the FDIC carcass crew plenty of time to line up potential buyers, scrap outdated letterhead, and hire hypnotists to help bank employees remember vault codes…
If the FDIC has enough lead time, it can obtain the bank’s financial records in advance and start looking for a potential buyer. Regulators select candidates and quietly notify them, in very general terms, that a bank matching their criteria is about to go on sale. Interested parties sign confidentiality agreements and then gain access to a secure FDIC Web site with more specific information. Bids are usually due by noon on the Tuesday prior to a planned Friday closing, and the winning bidder is notified by the end of the day. The acquiring bank must then quickly assemble its own team to help with the weekend merger.
On the Friday of a typical takeover, the FDIC arrives on-site with a large team to manage the transition. (When a large bank fails, this might include upward of 100 people.) The team has two main priorities. First, it must figure out which customers’ deposits are insured and which are not. This can be a tangle, since customers can sock away money in a variety of accounts to ensure that their deposits fall under FDIC-insured limits. The second priority is getting the bank ready to open under new ownership by Monday. That involves discarding any material with the old bank’s name on it—like posters, cashiers’ checks, and marquee signs—and putting the new bank’s paperwork, advertisements, and employees in place. Specialists from other departments, such as facilities, human resources, IT, public relations, and accounting, round out the FDIC’s team. Officials once even hired a hypnotist to help a bank employee remember a vault code.
We knew federal law required the FDIC to pay back insured deposits “as soon as possible,” but hypnotists? It’s oddly reassuring.