Billion Dollar Bank Failure – Guaranty Bank of Wisconsin Closed by Feds

For the second week in a row a billion dollar bank was closed by regulators.  Last week it was First NBC Bank of New Orleans and today it was Guaranty Bank, Milwaukee, Wisconsin (doing business as Best Bank in Georgia and Michigan).

Overwhelmed by bad loan, the Comptroller of the Currency shuttered Guaranty Bank and appointed the FDIC as receiver.  The FDIC in turn sold the failed bank to First-Citizens Bank & Trust Company, Raleigh, North Carolina, which assumed all deposits of Guaranty Bank.  No depositors of the failed bank lost money and all deposits assumed by First-Citizens will continue to have uninterrupted FDIC deposit insurance coverage.

Guaranty Bank had 119 branches spread out over five states when it was shut down with 107 of the branches located in retail outlets such as grocery stores.   Having a large number of bank branches located in grocery stores was probably an unwise and unprofitable allocation of resources as evidenced by the fact that First-Citizens will not reopen any of the “grocery store branches”.  Only 12 brick and mortar branches located in Wisconsin, Minnesota, and Illinois will be reopened.

Expired

Depositors accustomed to doing their banking while buying bread and ice cream will now have to visit a First-Citizens branch.  Over the weekend depositors of the failed Guaranty Bank will continue to have access to their money through the use of checks, debit cards and ATM machines.  There will, however, be no ATM access at any of the grocery store branches.  Depositors with accounts at the grocery store branches who want cash will have to deal with the inconvenience of waiting for First-Citizens to update their systems that integrate the branch accounts.

Perhaps a look at the operating philosophy of Guaranty Bank may shed some light on why a bank operating for 94 years winds up failing.  Here’s some verbiage from Guaranty Bank’s website.

Founded in 1923, we started as a small savings and loan business in Milwaukee, Wisconsin. Today we have more than 120 retail branches in five states.

We have a unique business model with the majority of branches in grocery stores. Our branch locations give customers access to the bank in the places where they shop, work and live, making banking easier for them.

We go where other banks don’t. Some of our customers may have been turned down at other banks, forcing them to rely on check cashing and payday loan stores or pawn shops.

We offer unique products and services designed to help a customer understand how to manage a checking account, build or rebuild their credit score. We help customers get on track.

We are a community partner. We work with community groups and other organizations to educate their members about basic financial matters.

Lending to people turned down by other banks due to poor credit and low income? Educating customers about basic financial matters that they should have learned in grade school?  Focused lending efforts directed at people who need to rebuild their credit?

Guaranty Bank sounds more like a government social program rather than a for profit business focused making sound loans with balanced risk evaluations.  This bank followed the path of many other failed banks by making loans to borrowers unable or unwilling to pay back their loans.

At March 31, 2017, Guaranty Bank had total assets of $1.0 billion and total liabilities of $1.0 billion.  First-Citizens Bank agreed to buy $892.6 million of the failed bank’s assets with the balance to be retained by the FDIC for later disposition.  The FDIC states the sale of failed banks to another sound institution is the most cost effective method of resolving a failed bank.

The estimated cost to the FDIC Deposit Insurance Fund is $146.4 million.  Guaranty Bank is the fifth banking failure of the year and the first in Wisconsin.  The last bank failure in Wisconsin occurred last year on March 11, 2016.

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