Three More Banks Closed, Including Largest Failure Year to Date

Before getting to specifics, some year-to-date totals.

• # of banks closed: 32
• Total Assets of banks closed: $19.2 billion
• Total Deposits of banks closed: $15.4 billion
• Total Estimated Cost to the Deposit Insurance Fund of bank closures: $5.3 billion

At 12/31/08, the DIF had just $19 billion backing $6.4 trillion worth of insured assets.

To the day’s failures…

The first bank failure announced this evening—#30 on the year—was the largest so far this year. Silverton Bank of Atlanta had $4.1 billion of assets and $3.3 billion worth of deposits, all within the FDIC’s insurance limits. FDIC anticipates the failure will cost the Deposit Insurance Fund $1.3 billion.

As noted last week, FDIC’s preferred method of resolving failed banks is to sell their assets to another, healthy bank. This minimizes costs to the DIF as well as disruption for customers.

In this case, FDIC apparently wasn’t able to find a buyer and will instead operate a “bridge bank” for Silverton’s customers.

The second bank failure —#31—was small. North Jersey Community Bank had just $45 million in assets and $44 million in deposits. Cost to the DIF is estimated at $18 million.

The third bank failure—#32—was Cache Valley Bank of Utah, with assets of $299 million and deposits of $284 million. Cost to the DIF is estimated at $119 million.

Comments

[Jasper M:]

These banks clearly followed a bad strategy - they did not groom any Fed governors. If they had, they wouldn't be in this mess.

I genuinely pity the FDIC execs, trying to figure out how to stretch 1/3 of one percent coverage. Talk about fractional reserve . . .

May 02 06:56 PM

[Rolfe Winkler:]

A quick note for readers, the title of this post is going to be changed. Silverton is the largest bank failure "year to date" not the largest bank failure to date. WaMu and Downey, which failed last year and are on FDIC's official "failed bank" list were larger. BTW, a good argument can be made that Citi, BofA and the rest of the big bank complex failed. Without government life support to mask their insolvency, all would have collapsed last year.

May 03 09:17 AM

[Did U Think...:]

"Talk about fractional reserve . . ."

AKA Fictional Reserve...

May 04 12:09 AM

[M Thetman:]

Due to the large number of failed banks in recent months, there's an important issue regarding FDIC insurance depositors need to be aware of.

While it is true an FDIC-insured depositor has never lost money on a claimed qualified account, there is a very important caveat:

If an insured depositor fails to claim an insured or transferred deposit within 18 months after the FDIC initiates the payment of insured deposits, the transferee institution must refund the deposit to the FDIC, and all rights of the depositor against the transferee institution are barred.

The FDIC then remits the insured deposit to the custody of the unclaimed property administrator in the account owner's home state, unless that state declines to accept custody. Upon delivery, the FDIC is deemed to have made payment to the depositor, and all rights of the depositor against the FDIC are barred.

Most states allow claims in perpetuity, but there's a reversion clause. If a depositor does not claim the deposit delivered to the custody of the State within 10 years of the date of delivery, the deposit must then immediately be refunded to FDIC, and all rights of the depositor against the state and the FDIC are barred.

It's important to note that If a state declines to accept custody of the deposit - which they sometimes do - the depositor must claim the funds from the FDIC before the receivership is terminated, or all rights of the depositor with respect to the deposit are barred. Dividends for credits arising from uninsured portions of a deposit may, however, be claimed after the receivership is terminated if a dividend check was returned by the post office for a bad address.

Depositors should also be aware that due to the large number of mergers and acquisitions in the banking industry over the years, it is possible they or a deceased family member might well have an account at a failed bank and not know it. (Transferred accounts are typically insured separelty for six months after the transfer.)

Finally, unclaimed safe deposit boxes at closed branches may be drilled and the contents sold at auction just weeks after closing, so prompt action is advised.

Details on individual failed banks and respective claims procedures are available at: failedbankreporter.com

May 04 12:19 PM