Thread: Regulators seize 2nd and 3rd bank failures of 2010

Regulators seize 2nd and 3rd bank failures of 2010

Updated 1h 17m ago | Comments 46 | Recommend 6
By Marcy Gordon, Associated Press

WASHINGTON — Regulators on Friday shut down two small banks in Illinois and Minnesota, the second and third bank failures of 2010 following 140 closures last year amid the weak economy and mounting loan defaults.

The Federal Deposit Insurance Corp. took over St. Stephen State Bank of St. Stephen, Minn., with $24.7 million in assets and $23.4 million in deposits, and Town Community Bank and Trust, based in Antioch, Ill., with $69.6 million in assets and $67.4 million in deposits.

First State Bank of St. Joseph, Minn., agreed to assume the assets and deposits of St. Stephen State Bank. First American Bank, based in Elk Grove Village, Ill., is buying the deposits and $67.6 million of the assets of Town Community Bank and Trust. The FDIC will retain the rest for sale.

In addition, the FDIC and First State Bank of St. Joseph agreed to share losses on $20.4 million of St. Stephen State Bank's loans and other assets. The agency and First American Bank agreed to share losses on $56.2 million of Town Community Bank and Trust's assets.

The failure of St. Stephen State Bank is expected to cost the federal insurance fund $7.2 million; that of Town Community, $17.8 million.

Last week a much larger institution, Horizon Bank in Bellingham, Wash., with $1.3 billion in assets, became the first bank to close this year. Its assets and deposits were purchased by Seattle-based Washington Federal Savings and Loan Association.

As the economy has soured, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have accelerated and sapped billions out of the federal deposit insurance fund. It fell into the red last year.

The 140 bank failures last year were the highest annual tally since 1992, at the height of the savings and loan crisis. They cost the insurance fund more than $30 billion last year. The failures compare with 25 in 2008 and three in 2007.

The number of bank failures is expected to rise further this year. The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.

The agency last year mandated banks to prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.

Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. Besides the fund, the FDIC has about $21 billion in cash available in reserve to cover losses at failed banks.

Banks have been especially hurt by failed real estate loans, both residential and commercial. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.

If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks hold large concentrations of these loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.

This week, the FDIC moved to seek public input on a plan to link the insurance premiums levied on banks to the degree of risk-taking encouraged by their executive pay policies. The plan could involve both rewards and penalties for banks. The idea is for institutions deemed to be higher-risk to pay bigger insurance fees.

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Bailouts for smaller banks considered

Posted 9/25/2009 2:04 PM | Comments 56 | Recommend 14
By Daniel Wagner, AP Business Writer

WASHINGTON — Federal regulators and lawmakers are weighing a round of bailouts for U.S. banks that were deemed too small or too risky to qualify for earlier aid.

Representatives from the Treasury Department, Federal Deposit Insurance Corp. and House Financial Services Committee discussed the plan by phone Thursday, said California Bankers Association Chairman Dan Doyle, who was on the call.

Small, community banks are struggling as commercial real estate and other loans go sour. Officials and industry representatives are considering how to get money to those banks, Doyle said Friday.

Other banking industry leaders confirmed that the conversations are taking place. They did not know when Treasury might announce the plan. Spokesmen for Treasury and the FDIC did not respond to requests for comment Friday.

The cash could go to banks whose ratings by regulators made them too weak to qualify for earlier rounds of funding. It may be limited to banks with less than $5 billion on their books. The banks could be required to raise matching money in the private markets, Doyle said.

"The rules were pretty restrictive," he said. "They want to give another opportunity for some of the community banks."

The aid for smaller banks could come from the money that larger institutions have repaid to the Treasury's $700 billion financial bailout fund.

The move could prevent some small bank failures, which would ease pressure on the FDIC's dwindling fund that insures bank deposits.

House Financial Services Committee Chairman Barney Frank has been "very, very supportive" of giving money to smaller banks, said committee spokesman Steve Adamske.

Small banks currently have until Nov. 9 to apply for the money. If more banks are deemed eligible, the deadline may have to be pushed back as the application process can take months to complete.

The plan could prevent officials from winding down a key financial bailout program. The $700 billion fund is set to expire on Dec. 31.

Republican lawmakers and some Democrats want Treasury to stop lending now that the financial markets have stabilized.

Treasury Secretary Timothy Geithner has trumpeted the end of some emergency financial programs as signs the economy is recovering. The department expects to see tens of billions of dollars in additional repayments to the fund in the coming months.

But Doyle said FDIC officials still expect up to 150 bank failures this year. So far, 94 banks have been closed. That's the most since 1992, during the savings-and-loan crisis. Officials are scrambling for a way to add money to the deposit insurance fund, and may levy a second extra fee on the banking industry.

Officials have said the bank capital injections, which come from Treasury's Capital Assistance Program, are for healthy banks not at risk of failing.

Lobbyists for small banks say the rules have been too restrictive, discriminating against smaller institutions that are likely to succeed.

"We believe the criteria to determine viability have been too strict," said Karen Thomas, the top lobbyist with the Independent Community Bankers of America. Banks that want government money should be required to raise some private capital to prove that the market believes they will succeed, she added.

The program would help "avoid any preventable bank failures," bolster the FDIC's deposit insurance fund and help small banks "weather the storm," Thomas said.

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