Dedicated to Deposits: Deals, Data, and Discussion

Review of Today's 3 Bank Closures and Update on Community Bank of Nevada's Closure

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Three banks failed today. Unlike the previous two Fridays, there weren't any large banks to fail. The largest one today was California-based Affinity Bank which had $1 billion in assets. For all three closures, the FDIC was able to find buyers who agreed to assume all deposits, including those above the FDIC limit. The only exception are some brokered deposits in which the acquiring banks will not assume. The FDIC will pay those accounts off directly.

The only thing depositors will have to worry about is having rates on their existing CDs cut by the acquiring banks. None of the three acquiring banks has decided if they'll honor rates on the existing CDs until maturity. If rates are reduced, the CD holders will have the option to make a penalty-free early withdrawal.

It has been common this year for the acquiring banks to decide not to honor existing CD rates. There was one exception last Friday with Guaranty Bank's closure. BBVA Compass who acquired Guaranty Bank stated in a FAQ on their website that they will honor rates of Guaranty CDs to maturity.

When the FDIC can't find a buyer

Besides the issue of CD rate cuts, these closures should be very easy for customers. When the FDIC can find a buyer, the customers may hardly notice a change. That's not the case when the FDIC cannot find a buyer. This is rare, but it has happened a few times this year. The last one was two weeks ago when Community Bank of Nevada was seized. The FDIC wasn't able to find a buyer, so the FDIC is closing the bank.

When the FDIC can't find a buyer and has to close the bank, it'll mail checks for the insured amounts of the CDs. This is not always a quick process. One of this blog's readers had a CD at Community Bank of Nevada, and he has been waiting two weeks for his check. He was contacted by the FDIC today, and he learned that the FDIC had the wrong address (FDIC used an address that he had never given to the bank). According to the FDIC, a new check was issued today.

Another reader was more fortunate. The check for his Community Bank of Nevada CD arrived last Saturday, just one week after the closure. He said he deposited the check into his Chase/WaMu account, and they placed a 7-day hold on it.

Fortunately, all of today's failed banks had buyers. So CD holders won't have to worry about having their checks lost in the mail.

Below is a summary of today's bank failures:

82nd Bank Failure of 2009 (2nd in MD)
  • FDIC Press Release
  • Closed Bank: Bradford Bank, Baltimore, MD
  • Size: 9 offices, $452 million in assets, $383 million in deposits
  • Possible Uninsured Deposits: All deposits transferred
  • Acquiring Bank: M&T Bank, Buffalo, NY
  • Rate Changes: M&T Bank will review rates
  • Estimated Cost to Deposit Insurance Fund: $97 million
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
83rd Bank Failure of 2009 (2nd in MN)
  • FDIC Press Release
  • Closed Bank: Mainstreet Bank, Forest Lake, MN
  • Size: 8 offices, $459 million in assets, $434 million in deposits
  • Possible Uninsured Deposits: All deposits transferred, except some brokered deposits
  • Acquiring Bank: Central Bank, Stillwater, MN
  • Rate Changes: Central Bank will review rates
  • Estimated Cost to Deposit Insurance Fund: $95 million
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
84th Bank Failure of 2009 (9th in CA)
  • FDIC Press Release
  • Closed Bank: Affinity Bank, Ventura, CA
  • Size: 10 branches, $1 billion in assets, $922 million in deposits
  • Possible Uninsured Deposits: All deposits transferred, except some brokered deposits
  • Acquiring Bank: Pacific Western Bank, San Diego, CA
  • Rate Changes: some rates may change (Pacific Western's FAQs)
  • Estimated Cost to Deposit Insurance Fund: $254 million
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
The above financial ratings are based on 3/31/09 data.

Update 8/29/09: The Pennsylvania credit union, Free Choice Federal Credit Union, was liquidated on Friday. This was a tiny credit union with less than $1 million in assets and only 400 members. According to the NCUA's press release, "Its members’ share accounts were purchased and assumed by Trumark Financial Credit Union of Trevose, Pennsylvania, providing Free Choice members with uninterrupted credit union service."

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


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Comments
9 Comments.
Comment #1 by Anonymous posted on
Anonymous
I enjoyed the part about Chase putting a 7-day hold on an FDIC check ... delicious irony.

1
Comment #2 by Anonymous posted on
Anonymous
Let's see, there's 400+ banks on the FDIC's troubled list. Let's assume 25% of these ultimately are restored to health, and that's probably really optimistic.

So FDIC has to close 300 banks. At a rate of 3 per week, it will take another 2 years ... and that's assuming the list of troubled banks doesn't continue to grow ... another really optimistic assumption.

Are we having fun yet?

1
Comment #3 by Anonymous posted on
Anonymous
.


>> Are we having fun yet?

Sure ... we are!

Perhaps what is nice in this rather grim situation is that this weeding out process by FDIC will result in much stronger banking system for US.

FDIC under Chairmanship of Ms Bair is doing a great job!


.

1
Comment #4 by Anonymous posted on
Anonymous
Banking Guy I hated reading this. My worst nightmare is having to receive a check for my deposit. I don't enjoy being reminded of the possibility. I wire everything, happily paying any charge. Checks . . . in a word . . . suck.

Corus will go down either next Friday, or the following Friday. I sure hope it is the latter. Otherwise, I could end up with a check. God forbid. If it happens, it'll hurt. For the Federal Government to be snail mailing checks is asinine. They should be wiring the money. They run the Fed Funds wire system for goodness sake! Too bad they also run the United States Post Office.

1
Comment #5 by Anonymous posted on
Anonymous
Forgive my ignorance... but what exactly is a brokered deposit?

1
Comment #6 by Data Is Gold (anonymous) posted on
Data Is Gold
To Anonymous, at 8:44 AM, August 29, 2009

Link: http://www.investopedia.com/terms/b/brokereddeposit.asp


Basically a Bank will sell it's CDs directly to a brokerage firm like Schwab, Fidelity and Vanguard. You as a customer of Schwab, Fidelity or Vanguard can then look up the CD and just buy it.

If you need your cash you can sell it on the open market. Which means you are technically not bound to any penalties for closing the CD. As you are just selling the CD to someone else.

1
Comment #7 by Anonymous posted on
Anonymous
"""Forgive my ignorance... but what exactly is a brokered deposit?"""

It is essentially like a mutual fund, number of people invest in a CD or other indexes that simulate a single investment.
The broker in this brokered deposit forwards the funds to various banks under his company name and disbursing the funds at the end of the term. By having millions from many clients, he or she will bargain better rates at the banks. Banks don't have to run CD specials and process thousands of applications for the same amount that a broker will deliver overnight to the bank.

1
Comment #9 by Anonymous posted on
Anonymous
affinity bank was a big piece of crap...not surprised they went down

1