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

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

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

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

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

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

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.

Jim - #6, Saturday, August 15, 2009 - 12:07 PM

Well, I guess they had more income and non-DIF reserves than I knew about so they aren't quite empty yet:

"The FDIC has already set aside $28 billion in reserve to cover projected losses for the next 12 months. In addition, the FDIC will collect more than $8 billion in premiums during the second quarter, including $5.6 billion from the special assessment the FDIC Board approved on May 22."
http://www.fdic.gov/news/news/press/2009/pr09077.html

Anonymous - #7, Saturday, August 15, 2009 - 8:04 PM

couple of questions regarding fdic insurance.
1. is there a limit to the number of beneficiaries i can have for a POD/ITF account?? i currently have 4 and want to increase it to 6.
2. can the beneficiary be under 18 yrs old?


regards

Banking Guy - #8, Sunday, August 16, 2009 - 2:32 PM

This FDIC webpage has the details regarding POD accounts.

Len - #9, Monday, August 17, 2009 - 3:00 PM

Called the bank today.

CD's were all closed out Friday, and the money taken by FDIC. Checks will be mailed from Dallas to all account holders today Monday 8/17. No one can go to the branch and withdraw money in person.

Regarding the Rewards Checking account, no interest has been paid yet at all. The account is showing accrued interest cycle-to-date, but I can't tell if that would ever be paid. The rep I spoke to said he had no information on that, and as far as he knew the balances showing were current. He put me on hold a long time then said interest would only be paid through 8/14, and I said I knew that but none had been paid since the last cycle date of 7/22. So it is unknown. Perhaps no interest will be paid at all for the final month, perhaps it will be the lower non-qualifying rate, or perhaps the full rewards rate.

If one were to go to the branch today, they could withdraw only what has posted to their account already. So no interest at all since the last cycle date.

To be safe, I wrote a check for something short of the balance in my account, leaving a little money there to keep the account open for the next 30 days in case interest does post. To withdraw all I think would close the account, then no interest would post for sure. I am hoping that during the coming weeks, perhaps even on 8/26 which would have been the next regular cycle date, the accrued interest will post. Then I would just withdraw exactly what was left in the account.

Len - #10, Thursday, August 27, 2009 - 12:42 PM

UPDATE ON REWARDS CHECKING INTEREST RATE PAID ON FINAL STATEMENT CYCLE AFTER CLOSING

The Community Bank of NV rewards checking statement cycled last night, 4th Wednesday of the month, just as if the bank had not failed. The website always showed accrued interest updated daily at the rewards rate, but they would determine at the end of cycle whether you qualified or not and then pay you that or the default amount accordingly.

On 8/17 Monday they changed the accrual rate to 0%, so no more interest would accrue. The interest that was already there from beginning of cycle stayed pending, and so it was calculated through Monday, not the prior Friday when they closed the bank. Thus, they paid 3 days more than I think they needed to, and I note the CD checks FDIC mailed also included interest through Monday.

At the statement cycle yesterday, presumably they checked to see if you met the requirements for rewards interest (I did), and then moved the accrued interest over into the balance just as if the bank hadn't closed. So I earned rewards interest through Monday 8/17.

Anonymous - #11, Friday, September 11, 2009 - 10:26 AM

The following appeared in the Orlando Sentinel on 9/11:
BB&T WELCOMES COLONIAL BANK CLIENTS.
On August 14, 2009, Branch Banking and Trust (BB&T) acquired the deposit accounts of Colonial Bank. Your former Colonial Bank account(s) has already been transferred to BB&T, and your account(s) will be handled as usual at any former Colonial branch. All of your accounts continue to be insured by the FDIC.

Effective August 17, 2009 any new deposit account or safe deposit box opened at a former Colonial Bank office will be considered opened with BB&T even though the documents, agreements and discolosures may reference Colonial Bank as your depository institution.

The terms and conditions of the agreements and disclosures you have been provided will remain in effect until you are properly notified of any changes to your account.

Anonymous - #12, Tuesday, September 15, 2009 - 10:33 PM

I finally got a letter from BB&T, that says they will honor the interest rate on your Colonial CD through the current renewal date. Also can do a penalty free withdrawal, but who cares... I will keep the higher interest rate lock. I guess that is smart of them, keep some current customers around.

Banking Guy - #13, Wednesday, September 16, 2009 - 7:37 AM

Thanks for the info. Glad to see they are going to honor rates on existing Colonial CDs to maturity.