Saturday, May 23, 2009

Bank failure #35 & 36 this year

Two Illinois banks with combined assets of almost $1 billion were closed by regulators, pushing the toll of failed U.S. lenders to 36 this year amid the longest recession since the 1930s.

Strategic Capital Bank in Champaign and Citizens National Bank in Macomb were closed and the Federal Deposit Insurance Corp. was named receiver of both, the FDIC said. Strategic Capital’s deposits were assumed by Midland States Bank of Effingham, Illinois, and deposits at Citizens National were purchased by Morton Community Bank.

“Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage,” the FDIC said.

Regulators are closing banks at the fastest pace in 15 years, including BankUnited Financial Corp. in Florida yesterday, and pumped $200 billion into the biggest banks in a Treasury rescue program. Costs from closing banks in the second quarter climbed to more than $8 billion, including $4.9 billion for BankUnited, from $2.28 billion in the first, FDIC data show.

Midland States will buy $536 million of Strategic Capital’s $537 million in assets, with the FDIC sharing losses on about $420 million of them, the regulator said. Midland States will assume all of the failed bank’s $471 million in deposits. Strategic Capital’s lone office will open on May 26 as a branch of Midland States.

Morton Community Bank

Morton Community will buy $240 million of Citizens National’s $437 million in assets and signed a loss-sharing agreement with the FDIC on $200 million. Half of Citizens National’s $400 million in deposits will go to Morton Community, with the other $200 million in brokered deposits being paid directly to the brokers, the FDIC said.

While the FDIC raises premiums for deposit insurance, it has dramatically mispriced risk and is unprepared for the wave of bank failures. It has therefore asked for $500 Billion from the Treasury to make up for its shortfall. This is why the FDIC needs to be dissolved.

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