Has anyone ever lost money over the FDIC limit?

Question

Has anyone lost money because a bank failed and they had more than $250k in deposits? As in, has this ever happened?

Answer 1

In the last 10+ years it is extremely rare to lose money when a bank fails, but it does happen.

Here some information from a bank that failed in 2020 but most people avoided losses:

Details of The First State Bank Failure

According to this FDIC press release, “The First State Bank had approximately $152.4 million in total assets and $139.5 million in total deposits. In addition to assuming all of the deposits, MVB Bank agreed to purchase approximately $147.2 million of The First State Bank's assets. The FDIC will retain the remaining assets for later disposition.”

Only Uninsured Brokered Deposits May Be At Risk

All deposits that were directly held at the failed bank, even those above the FDIC limits, were transferred to the new bank as described in the FDIC’s FAQs:

"No one lost any money on deposit as a result of the closure of this bank. All of the deposits, regardless of dollar amount, were transferred to MVB Bank, other than the Cede & Co. deposits which will be returned to them."

Both insured and uninsured deposits that were directly held at The First State Bank were transferred to MVB Bank. Thus, even depositors who had over the insurance limits had no loss in this failure. However, brokered deposits managed by Cede & Co. were not assumed by MVB Bank. Consequently, there is a possibility that someone may have lost money on a portion of their brokered deposits that exceeded the FDIC coverage limits. It demonstrates that uninsured brokered deposits are more at risk than uninsured deposits directly held at a bank.

But sometimes people do lose money if they are over the limit:

The Texas Department of Banking closed The Enloe State Bank on Friday according to an FDIC press release. The FDIC then arranged for Legend Bank, N.A. to assume the insured deposits. This is the first bank to fail since December 2017. The Enloe State Bank was small with only one branch, $36.7 million in assets and $31.3 million in deposits.

Between 2009 and 2017, it has been typical for the FDIC to arrange for another bank to acquire the failed bank and to assume all deposits, even those above the insurance limits. The FDIC did find another bank to acquire The Enloe State Bank, but the acquirer only agreed to assume insured deposits. This means that depositors who had over the insurance limits may lose those uninsured deposits. According to the FDIC, “there were approximately $500,000 that exceeded FDIC insurance limits.”

The limit used to be lower, it was only 100K back before the 2008 recession. They upped the amount to make sure that people were not worried that they would exceed the limit if they pulled funds out of the stock market.

There are cases when customers put their money into an account that isn't covered by the FDIC insurance. The bank should let them know the risk, but sometimes people ignore or miss the warnings.

The biggest risk for most people is that during the transition time it can be hard to get funds for a few days. Plus the need to change automatic transactions, get a new debit card...

Back in the 1980's there were problems with savings and loans, and their collapse cost people their money because the state run insurance funds were insufficient. Even if a person didn't lose funds they lost access to their money for weeks or longer. I was in college when this started and I remember the stories on the news about people trying to get access to any money to pay their rent.

Answer 2

I like the answer from mhoran_psprep, but some commenters asked for more explicit examples. I have yet to find a specific example, but a number of phrases in "FDIC losses in bank failures: Has FDICIA made a difference?" (appearing in Economic Perspectives, Vol. 28, 3rd, No. 3, August 2004 by George G. Kaufman) about how the FDIC accounts for losses imply that the FDIC has often, but not always, been able to protected uninsured deposits.

Indeed, from 1980 through the enactment of FDICIA at year-end 1991, the FDIC effectively protected all uninsured deposits at all large resolved banks and, at times, even not very large banks and most non-deposit creditor claims

I interpret the above quote as indicating that there have been some uninsured deposits that were not protected. Otherwise, they would not have needed to include the caveats in the last half of the sentence.

[S]ince 1992 the FDIC has protected uninsured depositors only in a very few instances at small banks, where the acquiring bank bid a premium to assume the small amount of uninsured deposits that was greater than the pro-rata loss on these deposits.

Again, the wording implies that here have been cases where uninsured depositors were not protected.

[Between 1983 and 1990], the associated combined losses to uninsured depositors, other stakeholders, and the FSLIC and FDIC were the highest in U.S. history.

Once again, if uninsured depositors have never lost money, Mr. Kaufman would have very likely chosen different wording.

[B]efore FDICIA, the FDIC frequently protected all uninsured claimants, particularly at larger banks, and absorbed the total loss.

And again, if an uninsured depositor never suffered a loss, the above quote would have been worded differently.

It's admittedly circumstantial, but those four passages strongly imply that someone has lost money by being over the limit. Perhaps Mr. Kaufman can provide specific examples. It looks like he is still teaching at Loyola University of Chicago.