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There are exceptions but the orderly bank failures take place on Friday. Ideally,
the FDIC has a buyer lined up so, at the time of take-over, there is a simultaneous
sale, and the FDIC can minimize their involvement.
The sudden takeover

In my case, the bank franchises were sold upon takeover, but the buyers did
not take over Humboldt Merchant Services. We were retained by the FDIC.
I remember the day well. I knew something had to occur, as I was informed
Friday morning that the banks had failed, yet there was no official notice as
to what would happen with Humboldt Merchant Services. Late in the day, I
received a call informing me that the FDIC officer in-charge would be arriving
on our site to take possession of the company. It was surreal.
The death After hours, the managers and I gathered in a conference room to hear from

of a bank the FDIC examiner. He had obviously done this before. He explained we now
worked for the FDIC. We would be paid overtime for the weekend's work (that
struck me as really strange). Their immediate concerns were how much cash we

By Ken Musante needed to run the business. They were surprised to learn that we were a cash
provider and, although we required bank sponsorship, no cash was needed to
Napa Payments and Consulting run the organization.
raditionally, banks make From the FDIC's perspective, although it is in the business of managing failed
money by lending out banks, this was not ordinary. There were four bank failures in the three years
funds at a rate greater than prior to 2008. You had to go back to 2002 to find a year with double digit bank
T they pay for deposits. The failures. FDIC receivership of merchant service operations were even more rare.
spread between the interest paid and Rarer still: we accepted higher risk merchants requiring significant reserves.
interest earned from borrowers is the
bank's interest income. That spread
has to be sufficiently large to cover
charge-offs and the operational costs
to run the bank.

Banks keep sufficient liquidity to
cover withdrawal requests; however,
if all depositors were to request
their deposits, the bank would face
a liquidity event. When a bank runs
out of deposits, it fails and is taken
over by its regulator.

In 2008, I was running a merchant
acquiring operation that was wholly
owned by a bank holding company.
Humboldt Merchant Services LP
was owned by First National Bank of
Arizona and First National Bank of
Nevada.

Both banks were privately owned and
heavily invested within the mortgage
market. Consequently, when the
mortgage market went south and
depositors requested their funds, the
banks failed.

Banks fail on Fridays. This gives the
Federal Deposit Insurance Corp. time
to step in and take possession of the
physical premises and be prepared
for customers on Monday.

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