Dedicated to Deposits: Deals, Data, and Discussion

First Bank Failure of 2009: National Bank of Commerce in Illinois

POSTED ON BY

National Bank of Commerce in Illinois was closed today by the Office of the Comptroller of the Currency, and the FDIC was named receiver. Here's the FDIC's press release link, and here's a summary of the closure:
  • Closed Bank: National Bank of Commerce
  • Location: Berkeley, IL
  • Size: 2 branches, $431 million assets, $402 million deposits
  • Possible Uninsured Deposits: ALL deposits transferred to acquiring bank
  • Acquiring Bank: Republic Bank of Chicago
  • Cost to Deposit Insurance Fund: $97 million (estimated)
  • Financial Ratings: 0 star at BauerFinancial, 1 star at Bankrate.com
It didn't take long into 2009 for the first failed bank. That's not a good sign. The first to fail in 2008 was on January 25th.

According to the OCC, it closed the bank after "finding that the bank was critically undercapitalized and had no reasonable prospect of becoming adequately capitalized."

This was yet another All-Deposit Transfer in which the acquiring bank assumed all deposits including those above the FDIC limits. In addition, brokered deposits were assumed by Republic Bank of Chicago. The FDIC has added a new Q&A regarding this:

Why do all deposits, insured and uninsured, pass in some transactions but not in others?

The FDIC is required by law to employ the least-cost resolution measure for each failed financial institution. The most frequent result is for the FDIC to transfer only the insured deposits in a merger transaction. The FDIC has been able to transfer all deposits in about 25% of the failures over the past 15 years.

It seems like these All-Deposit Transfers have become more frequent in the last year.

For those who have CDs at National Bank of Commerce, it appears Republic Bank of Chicago may decide not to honor the rates of those CDs to maturity. Here's the Q&A on this:

Will I continue to earn interest at the same rate? Will I be charged an early withdrawal penalty?

Republic Bank of Chicago will be reviewing rates and will notify you.

You may withdraw funds from any transferred account without an early withdrawal penalty until you enter into a new deposit agreement with your new bank. Entering into a new deposit agreement can be done by either renewing your CD or making a deposit to, or a withdrawal from, your account.

This is the main risk of having a CD with a balance under the FDIC limits at an unsound bank. The new bank may not honor the rate to the original maturity date of the CD. You'll receive all of you principal and interest, but you may have a difficult time finding a decent CD rate for that money.

Both BauerFinancial and Bankrate were on target with their ratings for soundness. Both gave National Bank of Commerce their lowest rating.

Update: A second bank failed a few hours after this failure (see post).

References:

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Comments
2 comments.
Comment #1 by Anonymous posted on
Anonymous
Bank of Clark County is closed as well.
http://seattletimes.nwsource.com/html/localnews/2008638969_webbank16.html

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Comment #2 by Anonymous posted on
Anonymous
I have some CDs , bought just last August of 08 with National Bank of Commerce AND, you are not quite right about BankRate's rating -- in August NBC was a 4 star (next to best) rating, with the analysis stating that the rating was not likely to change in the ensuing 12 months. Yesterday, BankRate,s rating was 1 star.

HANROD at
Hanrod1@aol.com

1