But a bank failure is a scary thing - especially if it’s your bank. However, here are a few things that should give you comfort.

• The vast majority of US banks are going to be fine. According to the FDIC website (Failed Bank List) only about 44 banks have failed since October 2000. That’s approximately 0.61% of the nations 7,200 banks. Those are pretty good odds.
• When banks do fail, most are insured. The FDIC insures deposits in several “ownership categories,” which means you may actually be insured beyond the $100,000 limit you hear about. For example, single accounts in your name are covered up to $100,000 per bank. Joint accounts are a separate category and also get their own $100,000 of coverage per person per bank. This means that a joint account held by you and your spouse is insured up to $200,000. Retirement accounts (IRS, SEP, etc.) are covered up to $250,000. Check out the FDIC’s tool to help you determine if your account is fully insured.
• Even if your bank fails, your account isn’t going to disappear. For example, in the case of Washington Mutual, the bank was sold to JPMorgan Chase. JPMorgan has already informed Washington Mutual customers to continue banking as usual. Within a few weeks customers will get new debit or credit cards, checks, etc. In the meantime however, your account number stays the same, your checks will still be honored and you will hardly know your bank failed at all.
• Although mutual funds are not covered by FDIC insurance does not mean you would lose the money you have in mutual funds that you bought through the bank if that bank failed. Mutual fund assets are not part of the bank’s assets - they’re held in separate accounts - so they don’t even come into play when calculating the bank’s assets and liabilities.
• Money-market accounts are considered bank deposits and are therefore insured by the FDIC. However, money-market funds are not considered deposits and are therefore not insured. Money-market funds fall in the mutual fund category and would be treated as such.

So although the recent news of bank collapses has occupied our thoughts lately, the chances of your own bank failing is actually very small. If it happens though, hopefully you’ll now be a little more prepared for what’s to come and can avoid panicking.

The short answer is: just like the rest of us.

Sometimes there are extenuating circumstances like a rash of lawsuits or a natural disaster that drains the city coffers dry; however, most cities go bankrupt because of poor management and even worse budgeting.

Which should, actually, give you hope. After all, if a city staff of 15 accountants can’t balance the budget, it can’t be that easy can it? Granted, balancing a city budget is a little harder than your family of four, but it is based on the same principles. Unfortunately, however, cities get caught up in union negotiations and local politics which prevents them from making the same decisions you and I might make. For example, politicians aren’t too popular when they need to raise taxes to increase revenues. As a result, many politicians hesitate to raise taxes while at the same time keeping city service levels the same. And, just like a personal budget, you can’t survive very long when your income doesn’t cover your expenses.

Federal Bankruptcy Help:
To help cities in dire straits the US Government enacted the first municipal bankruptcy legislation 1934 during the Great Depression. Although similar to other bankruptcy chapters in some respects, chapter 9 is significantly different in that there is no provision in the law for liquidation of the assets of the municipality and distribution of the proceeds to creditors. Could you imagine the city being forced to liquidate city roads, sewers, and parks? The town Burger King could end up owning the park by your house!

Instead, chapter 9 is generally limited to approving the city’s bankruptcy petition, confirming a plan of debt adjustment, and ensuring implementation of the plan. But most of the time, cities use the courts to simplify debt repayment and to eliminate the need for multiple forums to decide issues.

In the more than 60 years since Congress established Chapter 9 bankruptcy legislation, there have been fewer than 500 municipal bankruptcy petitions filed. Although chapter 9 cases are rare, a filing by a large municipality can— like the 1994 filing by Orange County, California—involve many millions of dollars in municipal debt.

In the case of Vallejo, its the largest city in California to declare bankruptcy, and the only one to do so because of long-term economic problems. City officials have said that the city has been hit hard by the weak housing market and rising public employee salaries and benefits. In fact, 80% of the city’s budget is set aside to pay for police and firefighter protection.

What Happens After Bankruptcy?
Almost nothing as far as you and I are concerned. Water keeps flowing, garbage is collected, and the roads and parks are maintained. Generally, the city’s larger development projects get put on hold, and long-term projects are scrapped for the time being. The government can be dissolved and taxes can be raised to cover the shortage. But generally bankruptcy gives the city power to impose terms and conditions for salaries and benefits unilaterally. The city obtains the upper hand to force terms with respect to its collective bargaining agreements including police and firefighter unions. So why it’s probably safe to assume that day-to-day life will remain the same, you can also count on your city taking a huge step backwards in terms of financial prosperity. That city library that was planned for next year - you won’t see that for at least 7 years. Relationships with city workers will have to be mended, and the city government will have to regain the trust of the citizens, or find people who are more capable of running the city,