Banking Failures – 77 And Counting
2009 has now seen a total of 52 more failed banks than occurred for all of 2008. The latest banking closures by the FDIC bring total banking failures for 2009 to 77. The latest five failed banks on August 14, 2009 had total assets of $26.8 billion and total losses to the FDIC Deposit Insurance Fund (DIF) are estimated at $3.7 billion.
The latest five failed banks are as follows:
Dwelling House Savings and Loan Association, Pittsburgh, PA -Number 73
Dwelling House Savings was closed today and the FDIC appointed as receiver. PNC Bank will assume all of Dwelling House Savings deposits and purchase $3 million of the failed bank’s assets. Total assets of this tiny failed bank amounted to $13.4 million of which the FDIC will retain $10.4 million for later disposition.
Dwelling House Savings had only one branch and the cost of closing the bank to the FDIC is estimated at $6.8 million. Dwelling House Savings is the first bank to fail in Pennsylvania this year.
Colonial Bank, Montgomery, Alabama – Number 74
It was widely assumed that Colonial Bank would be closed due to the bank’s severely impaired financial condition and a host of other factors, including a federal criminal investigation – see Colonial Bank- Is There Any Reason For Not Closing This Failed Bank?
Colonial Bank is the sixth biggest banking failure in U.S. history based on asset size and the cost to the FDIC Deposit Insurance Fund (DIF) is estimated at $2.8 billion. The size and frequency of bank closings this year has raised deep concerns about the overall health of the US banking industry, especially given the fact that many other large regional banks are also experiencing large losses with no end in sight. These concerns may have prompted FDIC Chairman Sheila Bair to make an unusual statement associated with the Colonial Bank failure, emphasizing that depositors in FDIC insured banks have never lost a penny.
“The past 18 months have been a very trying period in the financial services arena, but the FDIC and its staff have performed as Congress envisioned when it created the corporation more than 75 years ago,” said FDIC Chairman Sheila C. Bair. “Today, after protecting almost $300 billion in deposits since the current financial crisis began, the FDIC’s guarantee is as certain as ever. Our industry funded reserves have covered all losses to date. In fact, losses from today’s failures are lower than had been projected. I commend our staff for their excellent work in assuring once again a smooth transition for bank customers with these resolutions. The FDIC continues to stand by the nation’s insured deposits with the full faith and credit of the U.S. government. No depositor has ever lost a penny of their insured deposits.”
Colonial Bank had continued to lend aggressively in overvalued markets such as Florida even after it became obvious that more conservative lending would be appropriate. The banking regulators seemed unable to slow down the aggressive underwriting and lending standards of Colonial Bank until it was too late.
The FDIC entered into an agreement with Branch Banking and Trust (BB&T), Winston-Salem, North Carolina to assume all deposits of failed Colonial Bank. Colonial Bank had total assets of $25 billion and total deposits of $20 billion. BB&T will purchase $22 billion of the failed bank’s assets, subject to a loss-share transaction with the FDIC. The assets not purchased by BB&T will be retained by the FDIC for later disposition.
BB&T itself had earlier received $3.1 billion in TARP funds but has since paid back the money. As an ever increasing number of large banks face closure, the FDIC is having trouble finding banks that are capable or willing to take over failed banking institutions. In the case of Colonial Bank, there were few other bidders besides BB&T.
Generally speaking, crashing residential and commercial real estate values along with an ever increasing number of loan defaults have resulted in severely weakening the entire US banking system There are virtually no large “rock solid” banks available to take over failed banks, regardless of the FDIC loss-share agreements.
The cost of closing Colonial Bank to the FDIC DIF is estimated at $2.8 billion. Colonial Bank is the first banking failure in Alabama this year.
Union Bank, National Association, Gilbert, AZ – Number 75
The FDIC, as receiver, entered into a purchase and assumption agreement with MidFirst Bank, Oklahoma City, Oklahoma, to assume all of the deposits of Union Bank, excluding those from brokers. Out of total deposits of $112 million, Union Bank had a massive $88 million in brokered deposits.
The FDIC has recently begun to limit the amount of brokered deposits that a bank may solicit as well as the rate offered for brokered deposits. In the past, problem banks would offer extremely high CD rates in order to stay in business, but usually wound up failing anyways, leaving the FDIC with bigger losses than if the bank had been closed sooner. (See Should I Buy A CD From A Problem Bank?.)
Union Bank had total assets of $124 million and total deposits of $112 million. MidFirst agreed to purchase only $11 million of the failed banks assets, with the balance of $113 in assets to be retained by the FDIC for later disposition.
Union Bank is the second banking failure in Arizona this year and the closure is expected to cost the FDIC $61 million.
Community Bank of Arizona, Phoenix, AZ – Number 76
As receiver, the FDIC entered into an agreement with MidFirst Bank, Oklahoma City, Oklahoma to assume all deposits of failed Community Bank. The failed bank had assets of $158.5 million and deposits of $143.8 million. MidFirst will purchase $125.5 million of the failed bank’s assets, subject to a loss-share agreement with the FDIC.
Community Bank’s failure is expected to cost the FDIC DIF fund $25.5 million.
Community Bank of Nevada, Las Vegas, Nevada – Number 77 -The Bank Nobody Wanted – Depositors Lose in Excess of $4 Million In Savings – Huge Losses on Loan Portfolio
Community Bank of Nevada was closed and the FDIC appointed as receiver. Since no other bank would agree to take over the deposits or assets of the failed bank, the FDIC created the Deposit Insurance National Bank of Las Vegas (DINB) which will remain open for 30 days to give depositors time to close their accounts. This is an unusual method of closing a bank, but one which we may see far more often in the future, as explained below:
Under the FDI Act, the FDIC may create a deposit insurance national bank to ensure that depositors have continued access to their insured funds where no other bank has agreed to assume the insured deposits. The DINB allows for uninterrupted direct deposits and automated payments from customers’ accounts for customers with checking and NOW accounts and allows them time to find another institution with which to do business.
Community Bank had total assets of $1.52 billion and total deposits of $1.38 billion. At the time of closing, the FDIC estimates that there was approximately $4.2 million of uninsured deposits at the bank. The FDIC does not provide insurance above specified amounts and it is possible that depositors will lose the entire $4.2 million.
Community Bank was the third banking failure in Nevada this year and is expected to cost the FDIC DIF fund $781.5 million. The loss on this banking failure amounts to a staggering 51.4% of the failed bank’s total assets.