Learn What Could Happen to Your Loan if Your Bank Fails
In recent weeks, we have seen the highest-profile bank failures in the U.S. since the 2008 financial crisis. This has left many Americans worried about the state of the country’s banks and what could happen to their money and outstanding loans if their bank fails. Here’s what you might expect if your bank gets shut down by regulators.
What happens to loans if a bank fails?
A bank failure is not a thing to celebrate. If you were hoping your loans might disappear, you’re out of luck. If a bank is shut down, you will still owe the money left on your loan. A bank failure means that the Federal Deposit Insurance Corporation (FDIC) has determined it can’t continue to operate independently. When that occurs, the FDIC begins looking for a healthy bank that could acquire the assets and deposits of the closed bank.
Once a new bank is found, the failed bank’s loan book is transferred to the acquiring bank, and the loan customers will be notified. You will owe the same amount of money with the same terms.
What happens if a bank is not acquired right away?
If the FDIC can’t find a buyer right away, they may sell pieces of the bank or create a temporary bank while they look for a permanent buyer. This was the case when the Silicon Valley Bank failed on March 13, 2023. The FDIC created and operated the Silicon Valley Bridge Bank with the goal of protecting customers’ access to their money while the FDIC attempts to sell SVB to a healthy financial institution.
If this happens, you still owe the money on your loan and should continue to make payments. Borrowers are notified when this happens and where to make payments.
In summary, if your bank fails, you still owe the money left on your loan. You should not stop making payments. The FDIC would get to work immediately to sell the bank to a healthy financial institution or sell off assets and pieces to different institutions. You would be notified who owns your loan and where to make payments.