Bank Support: When A Bank Fails

Don’t let money matters undermine the strength of your financial fitness. For insights on how to improve the way you bank, follow Alex, our expert banking, via our series on Bank Support. To get started, check out the following questions and answers to these hot topics on bank failures, the IRS imposter scam, and the biggest myth about credit.

Question: What happens when a bank fails?

Asked by: Stephanie from Stockton, California.

Answer: According to the Federal Deposit Insurance Corporation (FDIC), the United States had 511 banks that failed from 2009 to 2022. This occurs when a financial institution can’t meet their obligations to its creditors and depositors. When that happens, the bank doesn’t have enough cash on hand to satisfy their customer’s needs. A mass panic will eventually ensue, and several bank customers will attempt to withdraw all of their funds at the same time. Unable to handle the cash demand, the bank will be forced to close down and cease operations. Fortunately, nearly all U.S. banks are FDIC insured. Created by Congress, the FDIC is an independent agency that provides insurance in the event a bank goes under. When there is a bank failure, the FDIC will either arrange a sale of the bank’s assets to a healthy bank or directly pay the depositors up to the insured limit. The FDIC limit is up to $250,000 per depositor, per institution, per ownership category and the payments typically begin a few days after the bank shuts down.

Question: What is the IRS imposter scam?

Asked by: Lana from Grand Island, Nebraska

Answer: The IRS imposter scam is when a fraudster contacts a victim either by phone, email, or text message and pretends to be working for the IRS. They will convince the person that back taxes are owed and an immediate payment is required. Otherwise, the individual will be arrested, sued, deported, or have their driver’s license revoked. The scammer will typically request a payment by gift card, prepaid debit card, wire transfer, or person-to-person payment service like PayPal, Venmo, or Zelle. Another common variation of this scam occurs when the criminal sends an email or text message claiming to be from the IRS. The message will request the taxpayer verify their personal information. It will often include a hyperlink that directs the victim to a fraudulent form or website. The scammer will use the information to apply for credit, receive a tax refund, open bank accounts, buy expensive items, and much more.

Question: What is the biggest myth about credit?

Asked by: Noah from Shreveport, Louisiana.

Answer: This is a very tricky question and depending on who you ask, can lead to multiple answers. In my experience, the biggest misconception from the public is that applying for a credit product will dramatically lower one’s credit score. When a credit application is submitted, the lender will pull the applicant’s credit history to help make a lending decision. This is known as a hard inquiry and has a tendency to slightly lower the applicant’s credit score. A single inquiry can lead to a dip of around 5 to 10 points. The effects on the credit report are temporary, generally lasting only a few months. A hard inquiry will stay on a credit report for up to two years and will have no impact on the credit score after one year.

Written by: Alex Sanchez

Important: For your specific questions about banking, contact your banking expert, Alex, at: alexexpertbanker@gmail.com

About our Author: With nearly 20 years of experience in the banking industry, Alex is currently a branch manager with First Interstate Bank. Throughout his career, he has contributed his expertise to renowned financial institutions like Bank of America, US Bank, and Chase. He also has a bachelor’s degree in Business Economics from the University of California, Riverside.

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