Bank failures continue unabated as the U.S. regulators closed down four more banks last Friday. Out of the four failed banks, two were based in Georgia and two in California. This brings the number of U.S. bank failures to 22 so far in 2011, preceded by 157 in 2010, 140 in 2009 and 25 in 2008.
While the various programs launched by the government worked in favor of the bigger banks, many smaller banks are still struggling to survive. Plunging home prices, lofty loan defaults and a high unemployment rate continue to cast a long shadow on such institutions.
With the industry absorbing bad loans offered during the credit explosion, the banking system is vulnerable to some severe problems. This is aggravating the risk of bank failures even further.
The failed banks are:
- Clarkesville, Georgia-based Habersham Bank, with total assets of about $387.6 million and total deposits of about $339.9 million as of December 31, 2010.
- Springfield, Georgia-based Citizens Bank of Effingham, with about $214.3 million in total assets and $206.5 million in total deposits as of December 31, 2010.
- Napa, California-based Charter Oak Bank, with total assets of about $120.8 million and total deposits of about $105.3 million as of December 31, 2010.
- San Luis Obispo, California-based San Luis Trust Bank, FSB, with total assets of about $332.6 million and total deposits of about $272.2 million as of December 31, 2010.
These bank failures represent another blow to the Federal Deposit Insurance Corporation (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for these banks.
The FDIC insures deposits in 7,760 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank collapses, the FDIC reimburses deposits of up to $250,000 per account.
Though the FDIC has managed to shore up its deposit insurance fund during the last few quarters, the outbreak of bank failures has tested its limits. As of September 30, 2010, the fund remained in the red with a deficit of $8 billion despite adding $7.2 billion during the quarter.
The failure of Habersham Bank is expected to be dearer by about $90.3 million for FDIC, while Citizens Bank of Effingham will cost about $59.4 million. The other two banks, Charter Oak Bank and San Luis Trust Bank, FSB will cost the FDIC about $21.8 million and $96.1 million, respectively.
Orangeburg, South Carolina-based SCBT National Association has agreed to assume the assets and deposits of Habersham Bank. The FDIC and SCBT National Association have agreed to share losses on $270.7 million of Habersham Bank’s assets.
Albany, Georgia-based Heritage Bank of the South has agreed to assume the assets and deposits of Citizens Bank of Effingham. The FDIC and Heritage Bank of the South have agreed to share losses on $158.1 million of Citizens Bank of Effingham’s assets.
Novato, California-based Bank of Marin has agreed to assume all of the deposits of Charter Oak Bank. The FDIC will retain $28.5 million of the assets for future disposal.
Westlake Village, California-based First California Bank has agreed to assume the assets and deposits of San Luis Trust Bank, FSB. The FDIC and First California Bank have agreed to share losses on $241.7 million assets of San Luis Trust Bank, FSB.
On a separate note, Denver, Colorado-based United Western Bank, which was closed on January 21, filed a suit against the FDIC and the federal Office of Thrift Supervision. Under the suit, United Western Bank claimed that the decision to close the bank was untimely.
United Western Bank was just about to raise $200 million in capital, which would have spared the bank from being padlocked. In fact, allowing the bank to raise capital would have saved an expected $312.8 million of deposit insurance fund.
In the third quarter of 2010, the number of banks on FDIC’s list of problem institutions grew to 860 from 829 in the previous quarter and 552 in the year-ago quarter. This is the highest since the savings and loan crisis in the early 1990s.
Increasing loan losses on commercial real estate are expected to result in hundreds of bank failures in the forthcoming years. Going by the current rate of bank insolvencies, the FDIC is likely to feel a $52 billion pinch over the next three years.
The failure of Washington Mutual in 2008 was the largest in the U.S. banking history. It was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).
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