FDIC Seized Seven Banks Last Thursday

Bloomberg reports that Seven US Banks Seized in Busiest Year for Closures Since 1992.

(emphasis mine) [my comment]

Seven U.S. Banks Seized in Busiest Year for Closures Since 1992
By Ari Levy and Flynn McRoberts

July 3 (Bloomberg) -- Six banks in Illinois and one in Texas were seized by regulators as the deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since 1992.

Twelve banks have failed this year in Illinois, the most of any state. The seven lenders seized yesterday, with total assets of $1.49 billion and deposits of $1.34 billion, were closed by state or federal regulators and the Federal Deposit Insurance Corp. was named receiver, according to statements from the FDIC. Buyers were named for each of the closed institutions.

The Illinois banks are affiliates of Peotone Bank & Trust Co., in Peotone, Illinois, about 45 miles (72 kilometers) south of Chicago. The failures resulted primarily because of soured loans and losses on investments in collateralized debt obligations, the FDIC said. Illinois, with an unemployment rate above the national average, was one of seven states to begin the fiscal year without a spending plan.

"The six failed Illinois banks are all controlled by one family and followed a similar business model that created concentrated exposure in each institution," the FDIC said. CDOs, which packaged bonds and loans into notes of varying risk and yield, lost money as real estate defaults soared.

Regulators this year have closed the most banks since the savings-and-loan crisis of the 1990s as lenders struggle with mounting losses on mortgages and commercial loans. The total for 2009 is more than double the 25 banks shuttered in 2008 and surpasses the 50 that were closed in 1993. The prior year there were 181 failures or government-assisted transactions.

FDIC Fund

The FDIC estimates yesterday's seizures will cost its insurance fund $314.3 million. The regulator imposed an emergency fee in May to raise $5.6 billion to rebuild the fund, which has deteriorated in the past 18 months. More assessments are possible, the FDIC said.

...
Chicago is 280 miles from Detroit, home to General Motors Corp. and Chrysler LLC, which were forced into bankruptcy. Lear Corp., the Southfield, Michigan-based maker of automotive seats, announced plans yesterday to enter bankruptcy. The unemployment rate in Illinois was 10.1 percent in May, compared with 9.4 percent nationally.

'A Mess'

"This is a mess," said Jack Ablin, who oversees $60 billion as chief investment officer at Harris Private Bank in Chicago. "We're a manufacturing state and in the Midwest, so we're influenced by the autos."

In addition to CDOs, the failed banks were plagued by losses on commercial real estate loans. Founders Bank of Worth, the biggest of the Illinois banks seized yesterday, had $374 million in construction and commercial real estate loans as of March, accounting for 63 percent of the bank's net loans and leases, according to a regulatory report.

Millennium State Bank of Texas, the Dallas-based bank taken over yesterday, had $67.5 million in such loans, or 81 percent of its total loans.

"The common denominator for most of the bank failures so far has been troubled construction loans," said Matthew Anderson of Foresight Analytics, an Oakland, California-based real estate research firm. "There's no easy way out with defaulted construction loans in today's environment."

The Illinois banks have a combined 29 branches, which will all open under new ownership by July 6, the FDIC said. Millennium's lone office will open that day as a unit of Irvine- based State Bank of Texas.

The following table lists the banks that were seized yesterday. Asset and deposit figures are in millions of U.S. dollars.

Failed Bank Buyer Assets Deposits

Founders Bank PrivateBank & Trust 962.5 848.9 Worth, IL Chicago

First National First Financial 166 147 Danville, IL Terre Haute, IN

Millennium State State Bank of Texas 118 115
Dallas Irving

Rock River Bank Harvard State Bank 77 75.8 Oregon, IL Harvard, IL

Elizabeth State Bank Galena State Bank 55.5 50.4 Elizabeth, IL Galena, IL

John Warner State Bank of Lincoln 70 64 Clinton, IL Lincoln, IL

First State Bank First National 36 34 Winchester, IL Beardstown, IL

My reaction: FDIC seized seven banks last Thursday.

1) Six banks in Illinois and one in Texas were seized by regulators on Thursday.

2) The deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since the savings-and-loan crisis of the 1990s.

3) The FDIC estimates yesterday's seizures will cost its insurance fund $314.3 million

4) Twelve banks have failed this year in Illinois, the most of any state.

5) The unemployment rate in Illinois was 10.1 percent in May, compared with 9.4 percent nationally.

6) The common denominator for most of the bank failures so far has been troubled construction loans.


Conclusion: Bank failures will get worse, especially when states like Illinois and California start cutting back on spending to balance their budgets.
Meanwhile, the FDIC's Deposit Insurance Fund plunged to an all time low of just $13 billion as of March 31 (0.27% of $4.8 trillion in insured deposits). It is also worth nothing that since March 31, 31 new banks have failed, including the biggest one so far this year, BankUnited. With today's $314.3 million, It is a good bet that most of the $13 billion has been spent in the past 3 months.

Before the end of summer, it is very likely that the Deposit Insurance Fund will run dry, forcing the Fed to monetize the deposits of failed banks. So you can add the FDIC running out of funds to the list of factors setting a time frame on the dollar's collapse.

This entry was posted in Bailouts, Currency_Collapse, Federal_Reserve, News_Developments, Wall_Street_Meltdown. Bookmark the permalink.

6 Responses to FDIC Seized Seven Banks Last Thursday

  1. Anonymous says:

    Banks own the government and the taxpayer funds the banks. Who is in charge here? Taxpayer, government or banks?

  2. Mark says:

    IMHO the dollar collapse will happen when all these sleepwalkers lending irresponsibly money to governments and thereby keeping the interest that insanely low finally recognize that they have been subject to the biggest and most successful marketing ever in history of the US.

    For 25 years now the interest on government bonds was in steady decline although the econonmic base desintegrated. And why? Because official numbers have been adjusted due to political need.

    So the question arises: what will trigger the vast majority of US creditors to drop their bonds?

  3. Anonymous says:

    Don't put the cart before the horse. We could, should see the USD at recent highs soon. Then splat.

  4. Anonymous says:

    This article refers to the "savings and loan crisis of the 1990's".

    Wasn't the S&L; crisis during the 1980's?

  5. Numonic says:

    Mark, the reason bond yields remained in decline for 25 years is not because there were buyers of those bonds but because we were able to make good on those bonds, meaning the bonds didn't default and were able to be rolled over. Now that we have a solvency problem, we will not be able to make good on the bonds and the bonds will default and not be able to be rolled over and this will send yields skyrocketing. Finding someone to buy the debt is not the problem, the problem is the trouble there is making good on the debt(too much debt, not enough cash). That is what sends yields higher, not the selling or nonacceptance of the debt. What drives the yield is the ability to make good on the debt not the issuing or acceptance of the debt. So it doesn't matter how many accept our debt, those who accept our debt are just risking being defaulted on. They don't control the yields. The one who controls the yeild is the one issuing the debt. The yield is the measure of the likeliness of default, the lower the yield the less likely the bond is to default, the higher the yield the more likely it is to default. But now the issuer of the debt has lost control of the yield as the ponzi scheme called credit has ended and now the issuer of the debt is forced to monetize the debt(that is print to make good on the debt). The problem for them is that the debt is coming due faster than they can print and this is leading to defaults as they can't print fast enough to make good on the debt. This is because the debt is electronic while the printing is tangible. This will continue to get worse and more and more defaults will take place. Holders of our debt will be defaulted on and regardless if they continue to hold the debt or even hold more, the yield will rise because the ability to make good on the debt is what drives the yeild not the acceptance of the debt.

    The S&L; crisis was in the 1990's.

  6. I cannot imagine which banks in my state will be closed down to, specifically here in the New York City and Long Island area. Heck, I thought depositing my money into a local bank is my best bet, but now it is a form of a chance in the not too distant future.

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