If the Government Shuts Down, Will Banks Be Open?

A government shutdown occurs when Congress fails to fund federal operations, leading to the cessation of non-essential functions. This often raises public concern about services like banking. However, the operational status of commercial banks is not directly impacted.

Normal Functioning of Commercial Banks

Commercial banks, whether large national chains or smaller community banks and credit unions, operate as private entities largely independent of daily federal appropriations. Their core functions, such as accepting deposits, facilitating withdrawals, processing payments, and originating loans, continue without interruption during a federal government shutdown. This includes services provided through automated teller machines (ATMs), online banking platforms, and mobile banking applications. Customers generally maintain full access to their funds and can conduct their routine financial transactions as usual.

The operational independence of these financial institutions means their services are not tied to the federal budget. Their daily activities are sustained by their own revenue and reserves, ensuring continuity for account holders. Payroll, bill payments, and other electronic transfers proceed as normal.

Continuity of Federal Financial Oversight

Even during a government shutdown, essential federal agencies responsible for overseeing the nation’s banking system continue their operations. Agencies such as the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the National Credit Union Administration (NCUA) are funded through means other than annual congressional appropriations.

For instance, the Federal Reserve derives its income from interest on government securities and fees for services, while the FDIC and NCUA are primarily funded by assessments on the financial institutions they regulate.

This independent funding allows these regulators to maintain functions, ensuring the safety and soundness of the financial system. The Federal Reserve continues its role in managing the nation’s money supply and payment systems. The FDIC insures deposits at banks, and the NCUA provides similar share insurance for credit unions, safeguarding consumer funds.

While some federal financial regulators, like the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC), may experience scaled-back operations, core banking oversight functions remain largely intact.

Impact on Government-Backed Financial Transactions

While commercial banks remain open, a government shutdown can create delays or disruptions for specific financial transactions that rely directly on federal government funding or processing. The issue lies with the federal agencies involved, not with the banks themselves, which will facilitate transactions once federal approvals or funds become available.

For example, the processing of new loan applications backed by federal agencies may experience slowdowns or temporary halts. The Small Business Administration (SBA) often stops approving new loans during a shutdown, impacting small businesses seeking financing.

Federal loan programs like those from the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) can see varying impacts. Some FHA loan endorsements might continue, but new applications or specific types of FHA loans may be delayed or paused. For VA loans, the impact is minimal, with the Department of Veterans Affairs continuing to process guarantees, though some administrative aspects requiring federal documentation might experience slight delays.

Regarding federal benefits, payments such as Social Security and veteran benefits continue during a government shutdown because they are classified as mandatory spending or are paid from dedicated trust funds, rather than annual appropriations. However, federal employees who are furloughed or working without pay might face temporary income disruptions, which can affect their ability to make loan payments or other financial obligations. In such cases, many banks and credit unions may offer assistance programs, such as loan payment deferrals or special credit options, to support affected customers. The Internal Revenue Service (IRS) may also scale back operations, leading to delays in taxpayer assistance, processing refunds, and certain tax administration activities.