Regulators closed a small 83 year old bank today in an unusual Thursday afternoon closing. Traditionally, failed banks are closed by regulators at the close on business on Friday afternoon to minimize customer disruption.
Was the unusual timing of the bank closing related to panicked depositors withdrawing money? Although the FDIC did not comment on the strange Thursday bank closing, there must have been some urgent occurrence that compelled regulators to act swiftly.
The failed bank in question, Public Savings Bank, Huntingdon Valley, PA, was in serious financial difficulty. Any nervous depositor of the failed Bank could have easily ascertained that Public Savings Bank was critically undercapitalized. In a consent order signed by the Bank and the FDIC in May 2011, a long list of unsafe and unsound banking practices were listed and the Bank was ordered to immediately raise additional capital.
Plunging stock markets and nervousness about the health of banks worldwide are certainly factors that would encourage depositors to play it safe and withdraw their money. Recent public polls reveal that almost 40% of the American public do not think that banks are safe. This fear is reinforced by the fact that the FDIC’s Deposit Insurance Fund is woefully inadequate to protect depositor funds.
At March 31, 2011, the FDIC Deposit Insurance Fund, with a negative fund balance of $1 billion dollars “protects” $6.4 trillion in deposits. Do the math and there’s not much comfort here. The ongoing panic in financial markets is also driving massive amounts of cash into banks which means that the amount insured by the FDIC has ballooned, providing even less comfort for depositors. What looks like an imminent banking crisis in Europe would quickly spread to the United States. The failure of numerous large US banks would force the FDIC to draw on its line of credit with the US Treasury which is having its own problems. It is not hard to envision an out of control banking crisis in Europe leading to bank holidays worldwide. Under the best scenario, depositors get their money back – at some undetermined point in the future
The Public Savings Bank website gave no hint of the Bank’s imminent failure:
For over 80 years we have been dedicated to serving the needs of our customers. We know you’re looking for friendly personalized service from an experienced staff to help you with your financial goals. Our clients are the reason for our high standards!
We have a bright successful future. We want our customers to be part of our success. Our goal is to be … Part of Your Success!
The FDIC entered into a purchase and assumption agreement with Capital Bank, N.A., Rockville, MD, to assume all deposits of failed Public Savings Bank. Depositors of the failed bank will have full access to their funds through checking accounts, debit cards and ATM transactions.
At June 30, 2011 Public Savings Bank had total assets of $46.8 million and $45.8 million in total deposits. Capital Bank agreed to purchase all of the failed Bank’s assets.
The cost to the FDIC insurance fund for the failure of Public Savings Bank is $11.0 million. Public Savings is the nation’s 65th banking failure and the first in Pennsylvania.
More on this topic: A Second Great Depression, or Worse?