When Your Bank and Retirement Accounts Can Be Seized

The recent failures of Silicon Valley Bank and Signature Bank almost triggered the first use of the “bail-in” established in the Dodd-Frank financial regulation law enacted after the financial crisis of 2007-2009.

The federal government prevented use of the provision and acted to protect large accounts of a number of Silicon Valley firms by declaring an emergency and waiving the $250,000 limit on FDIC insurance. Accounts at the banks of any value were protected by the FDIC.

Under Dodd-Frank, a bank or its successor can take some cash from depositor accounts under limited circumstances, which is known as a bail-in.

To trigger a bail-in, the bank must begin a process known as “orderly liquidation.” Essentially, the bank must be failing and file a statement to that effect with regulators.

Then, the bank can take depositors’ money to the extent an account balance exceeds the $250,000 FDIC insurance maximum. The bank also must exchange the cash for stock of equivalent value in the bank, based on the value of the stock on the date of the exchange.

You easily can avoid being part of a bail-in by limiting your account balances to the FDIC insurance limit. Also, to the extent you can, avoid doing business with a bank that has unstable finances.