Columbia Savings Bank, Ohio, Eighth Bank Failure of 2014 – Hundreds of Zombie Banks Remain Open for Business

csbState regulators shuttered a small Ohio bank which became the eighth banking failure of the year.  The Ohio Division of Financial Institutions closed Columbia Savings Bank, Cincinnati, Ohio, and appointed the FDIC as receiver.

To protect depositors the FDIC sold the failed bank to United Fidelity Bank, fsb, Evansville, Indiana, which assumed all deposits.

Although Columbia Savings Bank was very small with only $36.5 million of assets it was one of the oldest banks in the country having been established in 1892.  The Bank immediately ran into trouble from defaulting loans shortly after the housing crash began in 2007.  The Bank had a troubled asset ratio in excess of 100% since March 2009, a clear sign that the bank was in deep distress.

The troubled asset ratio compares Tier 1 capital plus loan loss reserves to the amount of delinquent and defaulted loans.  Once a bank has a troubled asset ratio in excess of 100% it becomes almost a statistical certainty that the bank will wind up failing.  By December 31, 2013, Columbia Savings Bank’s troubled asset ratio had swollen to 328% and regulators belatedly closed the Bank.

There has been a pronounced tendency by regulators to allow small deeply troubled zombie banks to continue operating for long periods of time after odds of a financial recovery have become exceedingly remote.  This is in contrast to the previous savings and loan banking crisis of the late 1980’s when weak banks were quickly closed and disposed of.  (See Problem Bank List at 20 Year High as Regulators Let Zombie Banks Remain Open).  More than six years after the start of the banking and financial crisis, the FDIC’s Problem Bank List still contains a starting number of banks.  At December 31, 2013, the Problem Bank List contained 467 banks or almost 7% of all FDIC insured institutions.  Prior to the banking crisis it was normal to see well under 100 banks on the Problem Bank List.

PBL DEC 2013

The sole branch of Columbia Savings Bank will reopen as a branch of United Fidelity Bank with uninterrupted FDIC deposit insurance coverage for failed bank depositors up to the applicable insurance limits.  Over the weekend customers of Columbia Savings Bank can access their money through checking accounts, ATMs, and debit cards.

At March 31, 2014, Columbia Savings Bank has total assets of $36.5 million and total deposits of $29.5 million.  United Fidelity Bank agreed to purchase all of the failed bank’s assets.

The loss to the FDIC Deposit Insurance Fund for the failure of Columbia Savings Bank is $5.3 million.  Columbia Savings Bank becomes the eighth banking failure of 2014 and the first in Ohio since September 2010.

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