Dedicated to Deposits: Deals, Data, and Discussion

2nd Bank Failure of 2009: Bank of Clark County in Washington State

POSTED ON BY

Bank of Clark County was closed on Friday by Washington State regulators, and the FDIC was named receiver. Here's the FDIC's press release link, and here's a summary of the closure:
  • Closed Bank: Bank of Clark County
  • Location: Vancouver, WA
  • Size: 3 branches, $446.5 million assets, $366.5 million deposits
  • Possible Uninsured Deposits: $39.3 million held in approximately 138 accounts
  • Acquiring Bank: Umpqua Bank
  • Cost to Deposit Insurance Fund: $120 and $145 million (estimated)
  • Financial Ratings: 3 stars at BauerFinancial, 3 stars at Bankrate.com
Having two banks fail on the third Friday of the year may be an ominous sign of things to come for 2009. The first bank failure occurred earlier on Friday in Illinois.

The Washington State regulators issued this press release in which they explain the reasoning for the closure. Here's an excerpt:

This unfortunate event is the result of a combination of significant deterioration in loan portfolios and the overall economic instability we are experiencing today in our country.


Unlike the previous failure, only insured deposits were transfered to the acquiring bank. The new insurance limits should help reduce the uninsured deposits. Here's how the first Q&A explains it:
If you have more than $250,000 in your interest-bearing account, or if the total of your related interest-bearing accounts exceeds $250,000, your accounts may require review by an FDIC Claim Agent.

Depositors with more than $250,000 may still be okay if they had multiple ownership categories (see FDIC page). However, it may take a little time for the Claim Agent review. The Claims Agents will ensure that the accounts meet the requirements for multiple ownership categories.

It appears Umpqua Bank has not decided whether it will close Bank of Clark County CDs or honor the original rates to their maturities. Here's the Q&A explaining this:
14. Will I continue to earn interest at the same rate?

All interest on insured deposits accrued through Friday, January 16, will be paid at your same rate. Umpqua Bank will be reviewing rates and will provide further information soon.

If you deposited funds through a broker, the interest will accrue and be paid through Friday, January 16.

Another interesting thing to note about this closure is Bank of Clark County's ratings for soundness: 3 stars (adequate) at BauerFinancial and 3 stars (performing) at Bankrate. This is a good example of why you shouldn't put too much faith into bank ratings. The problem may not be the rating system, but old data. The ratings are based on the data released by the FDIC, and this data is already over 3 months old.

References:
Thanks to the readers who emailed me news of these closures.

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Comments
6 comments.
Comment #1 by BillF (anonymous) posted on
BillF
Regarding bank ratings and how a 3 star rated bank could fail, I'm not sure the "old data" theory rings completely true. It could certainly be part of the story, but it's difficult to believe that a bank could go from "basically sound" to "failed" in the space of 3 months. More likely there are problems that aren't being adequately addressed by the current reporting system. One such obvious problem might be the difficulty in valuing assets and the lax manner in which institutions are permitted to assign values to their "level 3" assets.

I completely concur with the idea of not putting too much stock in the star ratings. If the bond rating agencies were so badly off-base, why would we expect the bank rating agencies to be doing any better?

1
Comment #2 by Anonymous posted on
Anonymous
The bank rating services such as Bauer are worthless. There is another bank in Washington State that went from a 5 star to a "none" in the course of two quarters. While rated a 5 everyone else in Washington knew the rating to be a joke. The ratings firms are way behind the true condition and banks can (and will) fail long before the ratings catch up.

1
Comment #3 by Anonymous posted on
Anonymous
If the rating system is unreliable, where else can we search for reliable data? I've tried to make sense of some financial statements and some are just down right hard to analyze without a degree in financial accounting. Any hints would be greatly appreciated.

1
Comment #4 by Anonymous posted on
Anonymous
In the present economic climate of loan losses, I find it useful to look at the nonperforming asset ratio, and I avoid banks whose asset quality is very questionable.

1
Comment #5 by manny (anonymous) posted on
manny
what do people think rates will look like in 3-4 months? gonna have some cash then.

1