Three More Banks Fail – Bringing Bank Failures to 98 So Far This Year

Three more banks were seized by banking regulators, bringing the number to 98 so far this year. Banks in Minnesota, Michigan and Colorado were the latest casualties.

In Minnesota, Jennings State Bank, a family-owned bank in Spring Grove, Minnesots went under, and had assets worth $56.3 million and deposits of $52.4 million as of July 31. Central Bank of Stillwater, Minnesota took over the assets and deposits of Jennings, along with their two branches. Losses of $37.7 million will be shared by Central and the FDIC.

In Warren, Michigan, Warren Bank was also taken over, holding assets worth $538 million and deposits of $501 million, also as of July 31. A division of Huntington Bancshares Inc., based in Columbus, Ohio, took over six branches, along with the deposits of Warren Bank. Assets acquired by Huntington were worth $83 million.

Warren Bank attempted to thwart the takeover by acquiring millions of dollars in mortgage-backed securities in order to improve the capital ratios of the bank. While that helped, it didn’t come close to bringing te capital ratios where they needed to be. Also attempts to raise private capital also failed, bringing them to the takeover.

Just these two banks will cost the Deposit Insurance Fund of the FDIC another $293.3 million.
 
The other bank failure was Southern Colorado National Bank, based in Pueblo, Colorado, which had assets of $39.5 million and deposits of $31.9 milion. Another Colorado bank, Legacy Bank, based in Wiley, Colorado, took over their two branches, along with all their assets and deposits. The FDIC and Legacy Bank worked out a deal to share the losses of $25.5 million.

Even though this is the largest number of banking failures since the savings and loan fiasco in the early part of the 1990s, it’s expected that hundreds of banks will still fail before the economic smoke clears, raising questions on how the FDIC will handle it, which is looking to borrow from the banking industry itself to shore up the Deposit Insurance Fund, which is out of money. If that is the way they go, they are looking to get a prepayment of $45 billion, which would entail fees for the next three years.

FDIC head Sheila Bair is fighting to keep from having to tap the $500 billion credit line the FDIC has with the Treasury Department, as she doesn’t want the FDIC to look weak and unable to do its job without the rescue from the Treasury. Bair has been attempting to expand the oversight powers of the FDIC, while Treasury Department head Timothy Geithner has been pushing to invest even more power in the Federal Reserve.