New City Bank, Chicago, Illinois, is the second bank to fail in Illinois this year. The insolvent bank was closed by the Illinois Department of Financial and Professional Regulation and the FDIC was named as receiver. The FDIC was unable to find a buyer for the failed bank, the second time this has happened in the past month.
The failure of the FDIC to find a buyer for failed New City Bank was not a unique occurrence. During the three year period of 2009 to 2011 a total of 389 banks failed and the FDIC was unable to find a buyer for 21 of these failed banks.
The FDIC may not receive bids for a failed bank from purchasers for a variety of reasons, including the size and location of the bank and quality of assets. When the FDIC fails to find a buyer for a failed bank, depositors are paid off and the FDIC retains all assets for later disposition.
Since the FDIC was unable to find a buyer for New City Bank, the failure will be handled as a “payout” and all insured depositors will be mailed checks for their account balances as of March 9, 2012. Depositors with balances in excess of the FDIC insurance limit of $250,000 may incur losses for any deposit amounts above the insurance limits.
When a bank fails and the FDIC is able to find a buyer, the purchasing bank usually assumes all deposits of the failed bank. There is higher degree of risk for depositors who exceed the FDIC insurance limits when a failed bank is not sold since the FDIC will only pay up to the insurance limit of $250,000. According to the FDIC, if anyone thinks that they may have uninsured deposits, they should contact the FDIC at 1-800-523-8173 to speak to a Claims Agent. A depositor with uninsured funds is entitled to submit a claim which may be paid after the bank has been fully liquidated, depending on the recovery amount of bank assets.
New City Bank was a relatively new bank, receiving its charter in 2003. Over the past two years, the amount of defaulted loans grew exponentially and as of the end of last year, the Bank had a very high troubled asset ratio of almost 400%. Typically, most banks wind up failing when the troubled asset ratio exceeds 100%.
As of December 31, 2011, New City Bank had total assets of $71.2 million and total deposits of $72.4 million. The FDIC will retain all of the assets of New City Bank for later disposition. As of December 2011, the FDIC was holding $28.5 billion of junk assets (classified as “resolution receivables”) that were acquired from failed banks and not yet disposed of (see FDIC Has A $30 Billion Junk Loan Problem).
The estimated loss to the FDIC Deposit Insurance Fund for the failure of New City Bank is $17.4 million. New City Bank is the 13th banking failure of the year and the second in Illinois.