When a bank fails, depositors are only guaranteed to receive the insured principal and accrued interest up to the day of the closure. After a closure, the new bank that assumes the deposits of the failed bank is free to reduce interest rates and close accounts. If the new bank makes any changes to the existing CDs, the bank has to allow penalty-free early withdrawals.
Corus Bank and MB Financial Bank
Corus Bank failed on September 11th, and the FDIC arranged for MB Financial Bank to assume all deposits. MB decided to keep its focus on the Chicagoland market. For the former Corus customers who live outside of Illinois, MB decided to close those accounts, and MB didn't waste any time. MB reported to have mailed checks on September 22nd. Letters informing customers of this were reported to have been mailed on September 18th. Some problems that readers reported included:
- CD rates were reset the day after Corus Bank's closure to 0.05%
- No options for withdrawals were given except receiving the checks by mail
- Checks were received before the letters. No explanation was included with the checks.
- Some readers were still waiting for their checks as of 9/26/09.
Will my CD continue to earn the same interest rate?
We are reviewing bank products and interest plans, and we will let you know if anything will change on any deposit account you had with Corus Bank.
It's understandable why many had the reasonable assumption that their accounts would continue without change until they were contacted. However, it appears CD rates were cut and accounts closed too early without giving enough time to ensure affected customers had been notified.
Irwin Union Bank and First Financial Bank
Irwin Union Bank was closed on September 18th, and the FDIC arranged for all deposits to be assumed by First Financial Bank. First Financial issued a letter dated September 24th to Irwin Union Bank depositors which described how existing Irwin Union CDs would change:
If your certificates of deposit currently has a rate greater than 1.50%, it will be reduced, effective September 24, 2009, to 1.50%/1.51% annual percentage yield until its maturity
As required, they also described how one could make a penalty-free withdrawal:
You may withdraw your funds from any CD without an early withdrawal penalty until you enter into a new CD agreement with First Financial Bank. Entering into a new agreement can be done by either 1) renewing your CD or 2) making a withdrawal from your CD.
One reader mentioned to me that he had a 5.30% 40-month CD at Irwin Union. So for many Irwin Union CD holders this will be a major rate cut. They can withdraw their money, and they should be able to do better than 1.50%. However, they shouldn't expect to find anything close to 5.30%.
One reader left a comment with a good idea. If you believe you have been mistreated by a bank that took over your failed bank, you should contact the FDIC. The more complaints logged against them the less likely they will be considered for future takeovers. Here's the link to the FDIC contact information. You may also want to contact the bank's primary regulator (OCC for the case of MB Financial). Here's the link to the OCC complaint form.