Quora Answer: Is FDIC Insurance Compulsory for All Banks - 14th July 2020?

The following is my answer to a Quora question: “Is FDIC insurance compulsory for all banks?”

No, it is not.  That is why it is important to check on the FDIC website if your bank is insured under FDIC.  If your bank is not insured under FDIC, and fails, you have lost your deposit.  If your bank is insured under FDIC, and fails, one of two things may happen.  In both cases, the FDIC takes over that bank, and assumes control of all of the accounts held there.

If the takeover is a purchase and assumption, an existing, healthy bank takes over the accounts of the insolvent bank.  This also includes the loan portfolio.  The customer feels no impact except that their account is now with a new bank.  This is regardless of the amount they held in the bank.

If the takeover is a payout, the FDIC liquidates everything owned by the insolvent bank.  They then pay out to the account holders whatever they held in the bank to the maximum of $250,000 per person or entity.  This means if you had up to $250,000 in the bank, you get that back.  And if your cumulative total of all your accounts under one name is more than this $250,000, you only get back the maximum, $250,000, and the rest is a loss.