Colonial Bank Closed by Regulators - Largest Bank Failure in 2009 and 6th Largest in US History

Jim - #1, Friday, August 14, 2009 - 9:25 PM CT

They weren't done after Colonial...
Three more.

The DIF must be empty after today even if they collected $3B in fees this quarter. They only had $648M in there at the start of today.

$648.1
-6.8
-2800.0
-61.0
-25.5
-781.5
________
= -3026.7

A nice spreadsheet shows up to today.

Len - #2, Friday, August 14, 2009 - 11:55 PM CT

I had 2 CDs and the rewards checking account at Community Bank of NV. As you indicated, the CD's were not transfered to the new Depository Insurance National Bank at all, and will be liquidated by FDIC with interest through today 8/14. I expect a US Treasury check will arrive next week for those. Unfortunately for those of us who are local, this does not give an opportunity to go to the branch on Monday AM and get the funds and move them to start earning interest elsewhere. The accounts are no longer there, they are with the FDIC.

As to the rewards checking, the statement cycle for everyone at that bank is on the 4th Wednesday of the month, so it would have been 8/19. The question is whether accrued interest will be paid at the bonus rate through today or not. I will post as soon as I find out. These accounts do survive and are accessible at the branches on Monday, so the funds can be retrieved in person, or checks can be written against them for the next month.

This method of closing is very abrupt, in many ways worse than Indymac. When the DI bank was created for Indymac, it stayed open for a long time, CDs continued to accrue interest then mature, etc. That allowed time to react. The FDIC does not like doing things that erode confidence in the system, and today's action really does. To say that your funds are available and checks will clear for only 30 days, after which your account will be closed and any funds left sent by check causes big problems for people who have automatic ACH debits, deposits of paychecks, pensions, etc, and more time should have been allowed. Further, the press release says that ACH debits will only be honored until 8/21, ONE WEEK, after which they will be bounced even if funds are there!!! Someone on vacation who has their power bill debited from their checking for example will return to find their payment bounced. A week gives no time for anyone to react who is not following this extremely closely. (Like waking every day to log in and see if your bank survived the day or you need to take emergency action!)

I will report when I learn how the rewards checking interest through today is handled.

Len - #3, Friday, August 14, 2009 - 11:57 PM CT

PS the rewards checking paid 4% on up to $100K when I opened it a few months ago. They discontinued opening new rewards accounts some time ago, and grandfathered the old accounts. Then starting a week later, they reduced the interest rate paid by 0.25% at least once a week. The final yield last dropped a few days ago was 2.25%.

Len - #4, Friday, August 14, 2009 - 11:58 PM CT

Correction, rewards statement cycle would have been 4th Wednesday=8/26, not 8/19.

Anonymous - #5, Saturday, August 15, 2009 - 10:57 AM CT

While during the great depression, a bank failure often caused panic, as seen in old photographs of worried depositors lined up in the snow hoping to salvage some of their life savings, today reader Len's biggest concern is that he might have to check a bank website during a holiday to be sure that an auto transfer has occurred. Perhaps that is a sign of progress, after all.