Regulators close 6 banks in
Ga, NJ, Ohio, Wis
Regulators shut down 3 Georgia banks,
1 each in NJ, Ohio, Wis; makes 125 US
failures this year
Marcy Gordon, AP Business Writer, On Friday September 17, 2010, 8:12 pm EDT
WASHINGTON (AP) -- Regulators on Friday shut down three Georgia banks and one each in New Jersey, Ohio and Wisconsin, boosting to 125 the number of U.S. bank failures this year amid the tough economic climate and growing loan defaults.
The Federal Deposit Insurance Corp. on Friday took over the Georgia banks: Bank of Ellijay, in Ellijay, with $168.8 million in assets; First Commerce Community Bank of Douglasville, with $248.2 million in assets; and Peoples Bank, based in Winder, with $447.2 million in assets.
The FDIC also seized ISN Bank in Cherry Hill, N.J., with $81.6 million in assets; Bramble Savings Bank of Milford, Ohio, with $47.5 million in assets; and Maritime Savings Bank, based in West Allis, Wis., with assets of $350.5 million.
Community & Southern Bank, based in Carrollton, Ga., agreed to assume the assets and deposits of Bank of Ellijay, First Commerce Community Bank and Peoples Bank. In addition, the FDIC and Community & Southern Bank agreed to share losses on $602.5 million of the three failed banks' loans and other assets.
Georgia, where the meltdown in the real estate market brought an avalanche of soured mortgage loans, has been one of the hardest hit states for bank collapses. The failures of the three banks Friday brought to 14 the number of Georgia banks that have fallen this year. Also high on the list of failure-heavy states are California, Florida and Illinois.
New Century Bank, based in Phoenixville, Pa., agreed to assume the assets and deposits of ISN Bank. New Century Bank does business as Customers Bank. The FDIC and New Century agreed to share losses on $64.8 million of ISN Bank's loans and other assets.
Foundation Bank, based in Cincinnati, is assuming the assets and deposits of Bramble Savings Bank.
And North Shore Bank, based in Brookfield, Wis., agreed to acquire all the deposits of Maritime Savings Bank and $177.6 million of its assets.
The failure of Bank of Ellijay is expected to cost the deposit insurance fund $55.2 million; that of First Commerce Community Bank, $71.4 million; that of Peoples Bank, $98.9 million; ISN Bank, $23.9 million; Bramble Savings Bank, $14.6 million; and Maritime Savings Bank, $83.6 million.
With 125 closures nationwide so far this year, the pace of bank failures exceeds that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 94 banks.
The pace has accelerated as banks' losses mount on loans made for commercial property and development. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.
The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.
The growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of June 30.
The number of banks on the FDIC's confidential "problem" list jumped to 829 in the second quarter from 775 three months earlier, even as the industry as a whole had its best quarter since 2007, making $21.6 billion in net income. Banks with more than $10 billion in assets -- only 1.3 percent of the industry -- accounted for $19.9 billion of the total earnings.
The FDIC expects the cost of resolving failed banks to total around $60 billion from 2010 through 2014.
The agency mandated last year that banks 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. That insurance cap was made permanent in the financial overhaul law enacted in July.
"Waves of More Foreclosures" =
More Bank Failures +
Big Trouble for the FDIC, Suttmeier Says
Posted Aug 11, 2010 07:30am EDT by Peter Gorenstein
housing market continues to send mix signals. More homes continue to
enter foreclosure but the number of homeowners carrying so-called “under water
mortgages,” declined in the second quarter, Zillow.com
21.5% of homeowners owed more on their mortgage than their home was worth in the second quarter, that’s down from 23.3% in the first quarter and 23% a year ago.
“There are a lot homes caught up in mortgage modifications,” explains Richard Suttmeier of ValuEngine.com, which he says results in a temporary stability in home prices. The key word: temporary.
“There’s waves of more foreclosures coming in the housing market because very few of the HAMP modifications are becoming permanent,” he says.
Meanwhile, the backdoor bailout of the housing market continues. Freddie
Mac reported a $4.7 billion second quarter loss Monday and asked the
government for another $1.8 billion in aid. Last week, Fannie Mae -
Freddie Mac’s larger counterpart - asked the government for $1.5 billion.
That brings the total tab for the government-sponsored entities to $148
billion. Suttmeier estimates, Fannie and Freddie, will wind up costing
taxpayers at least $400 billion.
All of this housing trouble creates a vicious cycle for the economy, jobs and the fragile banking system, Suttmeier tells Aaron in this clip, predicing another 30% drop in home prices by 2014, as measured by the Case-Shiller Index.
“If you’re not building homes, you’re not creating jobs. Construction is the biggest component of job creation on Main Street USA,” he says. “Community banks can’t lend because they’re stuffed with loans they wrote 2003-2007. They are going bad.”
The 'negative feedback loop’ is going to lead to more bank failures and that leads to another problem – a lack of money in the FDIC Insurance Fund.
"The FDIC Deposit Insurance fund has now been drained by just $1.33 billion so far this quarter bringing the year to date total to $18.93 billion well above the $15.33 billion prepaid assessments for all of 2010,” Suttmeier recently wrote clients. Ironically, filling that gap will fall on the shoulders of the ‘Too Big To Fail Banks’ he says. “Because they can afford it.”
The big banks can afford it thanks to TARP and other taxpayer subsidies but the rising cost of replenishing the FDIC fund means lower profits for the big banks, which means they'll be even less inclined to lend money to the rest of us, further curtailing economic activity.