At closing time almost every Friday for the past two years, officials from the Federal Deposit Insurance Corporation have swept through the front doors of banks across the nation. By now, their next moves are almost routine: a high-level regulator sits down with the bank CEO and formally places the firm in receivership. Then the FDIC staff spends the night poring over paperwork, updating software and ATMs, changing locks, and putting up new signs. The next business day—even if that means Saturday morning—the bank reopens as a new institution. Usually, the only change customers notice is the shiny new sign. For the FDIC, however, this is the culmination of a long and increasingly complicated courtship.
The FDIC collects fees from banks to stock its insurance fund, which it uses to back deposits. In a typical year, when perhaps two or three banks fail, these assessments are more than ample. But last year, as loans and investments buckled following the financial crisis, 140 banks failed at an estimated cost of $37.7 billion to the insurance fund, pushing the agency into the red—by $20.9 billion—for only the second time in history.
As a result, the FDIC has resorted to some inspired deal-making to shore up and sell banks while minimizing costs to the insurance fund—including protecting buyers from losses, signing on to stock-sharing agreements, and making it easier for private investors to buy failed institutions.
In the past two years, the FDIC has more than doubled its budget and hired thousands of temporary staffers. Their Friday nights are only getting busier, as the list of troubled banks continues to grow.