January 28, 2010 – Large depositors at failed FirsTier Bank of Colorado are shocked to learn that they potentially face the loss of all deposits held in excess of the FDIC deposit insurance limits. This is the second time in two weeks that the FDIC was unable to find a purchaser for a failed bank, thereby leaving large depositors exposed to losses.
Typically, when the FDIC sells a failed bank to another institution, the acquiring bank will assume all of the deposits of the failed bank, including those over the FDIC insurance limits.
When a bank fails and the FDIC is unable to find a buyer to assume all deposits of the failed bank, the transaction is classified as a “payoff”. The FDIC creates a Deposit Insurance National Bank (DINB) to allow customers access to insured funds, time to find another institution to do business with and uninterrupted direct deposits and automated payments. Depositors covered by FDIC insurance are promptly paid off by the FDIC.
Depositors with balances above the FDIC insurance limit are subject to a full loss of all uninsured deposits. This “lottery aspect” of deposit insurance leaves large depositors in a failed bank out of luck and subject to full loss on uninsured deposits.
The odds of losing money in a failed bank may be higher than most people realize. During 2010, there were 8 payoffs by the FDIC for failed banks that the FDIC could not sell. The 8 payoffs represented over 5% of all bank failures during 2010. During 2009, ten banks failed that could not be sold by the FDIC.
Depositors subject to loss on the failure of Enterprise Banking Company are certain to be further aggravated by the inequitable treatment of depositors. According to the FDIC, “noninterest-bearing accounts are fully insured regardless of amount”. See Bank Failure Exposes Inequity of FDIC Deposit Insurance.
Uninsured deposits of FirsTier Bank were not transferred to the DINB and depositors with funds in excess of the FDIC insurance limit potentially face the loss of all uninsured deposits. At the time of closing the FDIC did not provide an estimate of the losses on uninsured deposits. Customers with accounts over $250,000 should contact the FDIC at 1-800-517-8236 to discuss their deposits. Beginning Monday uninsured depositors can also access the FDIC web page “Is My Account Fully Insured” at http://www2.fdic.gov/dip/Index.asp.
FirsTier Bank was closed by the Colorado Division of Banking. The Bank had been issued a Consent Order by regulators dated January 22, 2010, citing inadequate capital and other regulatory lapses.
In a letter to customers on FirsTier Bank’s website, Timothy Wiens, Bank Chairman and CEO addressed the Consent Order.
Like many businesses and banks in Colorado and across the nation, we have been negatively impacted by the downturn in the economy and the impact the downturn has had on our customers’ businesses. We’re proud of our history of serving our local communities, but some of our loan customers have been hit particularly hard by falling real estate values and we expect that they will continue to deal with these circumstances for some time.. We see signs that the economy is beginning to improve, however we expect that it will take time before there’s significant improvement.
Bank regulators, as part of their normal review process, review the impact of the economic downturn on the bank’s loan portfolio. During our most recent review, examiners identified some issues with our loan portfolio and as a result, we’ve entered into an Agreement to address their specific concerns.
Our management team has been working to improve these areas of concern and we have made significant progress. Rest assured that our entire team remains committed to working through this situation with our loan customers and we are confident we will be able to do so successfully.
Unfortunately, FirsTier Bank was not able to survive, but to the Bank’s credit, they appropriately disclosed the material facts to their customers and specifically advised them how to ascertain if deposits were safe and insured by the FDIC.
FirsTier was a locally owned and operated bank with 8 branches located in the Denver Metro area. At September 30, 2010, FirsTier had $781.5 million in assets and $722.8 million in deposits.
The failure of FirsTier is expected to result in a loss of $242.6 million for the FDIC Deposit Insurance Fund. FirsTier is the tenth banking failure of the year and the second in Colorado. Last week, two billion dollar asset United Western Bank of Denver was closed by regulators.