4 Failed Banks For August 21, 2009 Include Second Largest Banking Failure In 2009

Banking Failures – 81 And Counting

2009 has now seen a total of 56 more failed banks than occurred for all of 2008.  The latest banking closures by the FDIC bring total banking failures for 2009 to 81.  The latest four failed banks on August 21, 2009 had total assets of $13.9 billion and total losses to the FDIC Deposit Insurance Fund (DIF) are estimated at $3.26 billion.

The latest four failed banks are as follows:

ebank, Atlanta, Georgia – Number 78

ebank was closed today and to protect depositors, the FDIC as receiver entered into a purchase and assumption agreement with  Stearns Bank, National Association, St Cloud, Minnesota to assume all deposits of ebank as well as essentially all of the failed bank’s assets.

ebank had total assets of $143 million and total deposits of $130 million.  The FDIC entered into a loss-share transaction with Stearns Bank on $111 of the failed bank’s assets.

ebank is the 17th banking failure in Georgia this year.  Georgia leads the nation in failed banks – see How Georgia Became The Failed Bank Capital Of The U.S. The ebank closing is expected to cost the FDIC DIF $63 million.

Stearns Bank has been an active purchaser of failed banks this year, including two failed Florida banks on August 7, 2009.  In addition, Stearns had purchased a $730 million loan portfolio from the FDIC in February 2009.   Stearns is a strongly capitalized bank and sees opportunity in purchasing failed banking operations, especially since the FDIC is underwriting the majority of losses that may be realized on the purchase of failed bank assets.

First Coweta, Newnan, Georgia – Number 79

The FDIC, as receiver for First Coweta, sold all of the failed banks deposits (excluding brokered deposits) and most of its assets to United Bank, Zebulon, Georgia.   Of the $155 million in assets acquired by United Bank,  the FDIC entered into a loss-share transaction covering $124 million of First Coweta’s assets.

First Coweta is the 18th banking failure in Georgia this year.  The cost to  the FDIC Deposit Insurance Fund (DIF) for closing First Coweta is estimated at $46 million.

CapitalSouth Bank, Birmingham, Alabama – Number 80

Iberiabank, Lafayette, Louisiana, will assume all of the deposits (except brokered deposits)  of failed CapitalSouth Bank.  CapitalSouth had total deposits of $546 million and total assets of $617.  Iberiabank will also purchase $589 million of the failed bank’s assets, subject to a loss-share transaction with the FDIC.

CapitalSouth is the second banking failure this year in Alabama.  The cost to the FDIC DIF fund for closing CapitalSouth is estimated at $151 million or 24% of the failed bank’s assets.

Guaranty Bank, Austin, Texas – Number 81

It had been widely anticipated that Guaranty Bank would be closed today.  Guaranty Bank is the second largest banking failure of 2009 and the 10th largest in US banking history.  Guaranty Bank’s deposits (excluding $344 million in brokered deposits) were assumed by BBVA Compass, Birmingham, Alabama, the US banking arm of Banco Bilbao of Spain.

Guaranty Bank had total deposits of $12 billion and total assets of $13 billion.  $12 billion of the failed bank’s assets will be purchased by BBVA, subject to a loss-share transaction with the FDIC.   As with the failure of Colonial Bank last week (the sixth biggest banking failure in US history), the vast majority of losses on assets purchased by BBVA will be covered by the FDIC.

Guaranty Bank  is the second banking failure in Texas this year.  The loss to the FDIC DIF fund is estimated at $3 billion.

Is The FDIC Deposit Insurance Fund Depleted?

Due to the difficulty in predicting the  ultimate value of assets of failed banks, the FDIC has had to agree to absorb the majority of losses in order to encourage other banking institutions to purchase failed bank assets.  This situation, along with the large number of failed banks this year, has resulted in the FDIC taking losses in excess of $20 billion, which has severely depleted the FDIC Deposit Insurance Fund – see FDIC Takes Action To Bolster DIF Fund.

The FDIC has previously stated the importance of preventing the DIF fund from declining to a level that could undermine public confidence in the banking system.

The FDIC believes that it is important that the fund not decline to a level that could undermine public confidence in federal deposit insurance. A fund balance and reserve ratio that are near zero or negative could create public confusion about the FDIC’s ability to move quickly to resolve problem institutions and protect insured depositors.

In May 2009, after increasing the DIF assessment on banks with FDIC  insured deposits, the FDIC expressed confidence that the DIF fund balance would remain positive.

With the special assessment adopted today, the FDIC projects that the DIF will remain low but positive through 2009 and then begin to rise in 2010. However, Chairman Bair also cautioned that given the inherent uncertainty in these projections and the importance of maintaining a positive fund balance and reserve ratio, “it is probable that an additional special assessment will be necessary in the fourth quarter, although the amount of such a special assessment is uncertain.”

When the FDIC Quarterly Banking Profile is released next week, it is probable that the DIF fund may show a negative balance based on the FDIC losses incurred on failed banks to date.  The large number of banks on the Problem Bank List would also seem to indicate that the number of banking failures will continue to increase well into next year.