Here’s how the logistics work:
The FDIC waits until closing time of the bank they’re targeting to close. They wait until after the last customer has left, then a couple of them walk into the bank in plainclothes, flash a badge/ID, ask to see the highest level bank officer in the building and they go into a back room. The employees don’t know what it going on at this point.
The FDIC spells out the situation to the banking officer(s) that they can find, saying “You’re a failed bank, we’re taking you over.” There’s no arguing about the issue. In most all cases, the FDIC or other banking regulator (or possible the FDIC *and* other regulators) have sent the bank notices of non-conformance with regulatory limits on capital, or offerings prior to the take-over, so it usually isn’t a complete surprise (unless the bank officers have been deluding themselves).
If the senior level banking officers are off-site, the FDIC gets hold of them by phone, asks them to come in (if possible) and then sets about seizing all records, deposits, loan docs, etc. The employees in the bank are often pulled into the takeover logistics, but they’re not allowed to talk about it until the bank is open for business again. If the failed bank has been offered up to other banks as a take-over target and a bank has made an acceptable take-over offer, the acquiring bank is notified that the FDIC is in the failed bank, etc. Here’s an example:
The whole thing is done in a very co-ordinated manner. The FDIC employees show up in the town of the target failed bank a week to 30 days ahead of the seizure, and they check into a variety of hotels in the area under false names. The FDIC will try to spread their people around so that there isn’t this “big bunch of Feds” staying in one hotel. The failing bank’s assets are shopped around to other banks under a strict non-disclosure agreement.
Some banks on the left coast might well be open until 1800 local on a Friday night, which means that even if the FDIC agents taking the bank over notified the DC office as soon as they were inside, the DC office wouldn’t know about it until after 2000 Eastern.
In short, to make the bank transition as smooth as possible, the FDIC does a lot of things in secret, with a great deal of attention to time co-ordination of who gets what information. That includes the public.
There’s nothing productive to be gained in waiting to post until the following Friday. People want to know that their money is safe. This is why the FDIC takes over banks a) after the close of business, b) on a Friday, c) with a succession plan (either another bank or FDIC management) previously planned at least two days ahead of time.
You almost make it sound like a well thought out and intelligently implemented plan. This is the federal government you’re talking about, right?
Great post, very informative. Thanks.