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Regulators Close Three Banks & One Credit Union

POSTED ON BY

The FDIC and the NCUA were back in action this Friday. Three banks and one credit union were closed by regulators. That raises the number of 2011 bank failures to 51 and the number of 2011 credit union failures to 11. Last year at this time there had been 90 bank failures and 10 credit union liquidations.

All three banks were small, each with under $1 billion in assets. First Chicago Bank & Trust was the largest with $959.3 million in assets. The second largest bank, Colorado Capital Bank, had $717.5 million in assets. The third failed bank, Signature (also from Colorado) was much smaller with $66.7 million in assets.

The FDIC arranged for other banks to assume all deposits of the three failed banks. The only exception was some brokered deposits. The banks that acquired First Chicago Bank and Colorado Capital Bank excluded Cede & Co. brokered deposits.

The only concern for depositors will be the potential for the rates of their CDs to be lowered. The bank that acquired First Chicago Bank, Northbrook Bank & Trust Company, provided FAQs on the closure, and they stated that "CDs will remain the same until maturity." For the other two banks, they didn't mention what would happen to existing CDs on their websites. The FDIC Q&A Guides just had the typical note:

Interest on deposits accrued through close of business the day the bank was closed will be paid at your same rate. Current rates will be reviewed by the new bank and may be lowered; however, you may withdraw funds from any transferred account without early withdrawal penalty until you renew your Certificate of Deposit.

The credit union failure was a little more interesting. The NCUA didn't find another credit union to take over Borinquen Federal Credit Union of Philadelphia. Thus, the NCUA will be sending checks of insured deposits to members within one week.

Another interesting thing to note about this credit union is that it was placed into conservatorship on June 24th. When the NCUA took over the management of the credit union, they must have seen some serious problems.

Members still have complete access to both insured and uninsured deposits when a credit union is placed into conservatorship. As can be seen with this case, members with over the NCUA coverage limit should act quickly when they learn their credit union was placed into conservatorship. Of course it's always best to keep under the limit. Not all credit unions go into conservatorship before liquidation.

Below is a summary of today's bank and credit union failures:

49th Bank Failure of 2011 (5th in Illinois)

  • FDIC Press Release
  • Closed Bank: First Chicago Bank & Trust, Chicago, IL
  • Size: 7 branches, $959.3 million in assets, $887.5 million in deposits
  • Acquiring Bank: Northbrook Bank & Trust Company, Northbrook, IL
  • Possible Uninsured Deposits: All deposit accounts, excluding any Cede & Co. deposits, have been assumed by Northbrook Bank & Trust Company
  • Rate Changes: CDs will remain the same until maturity and automatically renew at the Northbrook Bank & Trust posted rates in effect at maturity, unless you are notified otherwise (bank's FAQ)
  • Estimated Cost to Deposit Insurance Fund: $284.3 million
  • Enforcement Action: Federal Reserve 3/8/10 Written Agreement, Federal Reserve 4/7/11 Prompt Corrective Action
  • Financial Ratings: 1 star at Bankrate.com, 0 star at BauerFinancial, 1 star & Texas Ratio of 244.69% at DepositAccounts.com (see financial rating note)

50th Bank Failure of 2011 (3rd in Colorado)

  • FDIC Press Release
  • Closed Bank: Colorado Capital Bank, Castle Rock, CO
  • Size: 7 branches, $717.5 million in assets, $672.8 million in deposits
  • Acquiring Bank: First-Citizens Bank & Trust Company, Raleigh, NC
  • Possible Uninsured Deposits: All deposit accounts, excluding the Cede & Co. deposits, have been assumed by First-Citizens Bank & Trust Company
  • Rate Changes: Current rates will be reviewed by the new bank and may be lowered (FDIC Q&A)
  • Estimated Cost to Deposit Insurance Fund: $283.8 million
  • Enforcement Action: FDIC 9/9/10 Consent Order, FDIC 5/4/11 Prompt Corrective Action
  • Financial Ratings: 1 star at Bankrate.com, 0 star at BauerFinancial, 1 star & Texas Ratio of 415.72% at DepositAccounts.com (see financial rating note)

51st Bank Failure of 2011 (4th in Colorado)

  • FDIC Press Release
  • Closed Bank: Signature Bank, Windsor, CO
  • Size: 3 branches, $66.7 million in assets, $64.5 million in deposits
  • Acquiring Bank: Points West Community Bank, Julesburg, CO
  • Possible Uninsured Deposits: All deposit accounts, including brokered deposits, has been assumed by Points West Community Bank
  • Rate Changes: Current rates will be reviewed by the new bank and may be lowered (FDIC Q&A)
  • Estimated Cost to Deposit Insurance Fund: $22.3 million
  • Enforcement Action: FDIC 10/22/09 Cease & Desist Order, FDIC 3/31/11 Prompt Corrective Action
  • Financial Ratings: 1 star at Bankrate.com, 0 star at BauerFinancial, 1 star & Texas Ratio of 209.00% at DepositAccounts.com (see financial rating note)

11th Credit Union Liquidation of 2011 (July 8)

  • NCUA Press Release
  • Liquidated CU: Borinquen Federal Credit Union of Philadelphia
  • Conservatorship Date: June 24, 2011
  • Size: $6 million in deposits and 8,600 members
  • Acquiring CU: None
  • Financial Ratings: 3 stars at Bankrate.com, 1 star at BauerFinancial, 3 stars at DepositAccounts.com and Texas Ratio of 22.45% (see financial ratings note)

Financial Ratings Notes: 0 star is lowest at BauerFinancial, 1 star is lowest at Bankrate.com & DepositAccounts.com, Texas Ratios over 100% is considered at risk. Ratings are based on March 2011 data except at Bankrate.com which are still based on December 2010 data.

References:


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Comments
5 comments.
Comment #1 by 51hh posted on
51hh
Borinquen Federal Credit Union of Philadelphia:

3 stars at Bankrate.com, 1 star at BauerFinancial, 3 stars at DepositAccounts.com and Texas Ratio of 22.45%

Unless I am misisng something, the bank rating may not be the sole determining factor for bank health. 

Care to comment?

6
Comment #2 by eric2 posted on
eric2
My guess is that, given the very small size of the institution, ONE instance of major embezzlement or fraud would be enough to shut it down. We have seen this happen before (i.e. Dwelling House S&L in Pittsburgh, and there was also a small bank in Oklahoma that was shut despite high ratings - last year?)

The ratings are only updated quarterly (at best) and 3 months is enough time to sink an institution of that size.

This is one reason why, no matter how strong the ratings may be, I wouldn't go over the FDIC insurance limits with an extremely small bank. If I had to go over the limits I would only consider using a financially sound bank that was large enough to 1) have its own internal audit that would catch something like this early - a lot of smaller institutions don't - and 2) financially healthy enough to withstand a $10-$20 million loss without going under.

9
Comment #3 by Bancxman (anonymous) posted on
Bancxman
Last month, NCUA hit Borinquen with a Cease ans Desist Order citing "serious and persistent record keeping problems". Borinquen was also ordered to obtain a proper audit. Since Borinquen was closed only one month later, I believe we can assume that further examinations of its books demonstrated that it was broke.

4
Comment #4 by Anonymous posted on
Anonymous
51hh has it right.The Fed has gotten the power to close any

financial institution it deems at risk.

1
Comment #5 by normanok posted on
normanok
hay rhett ogardy aqui what no georgia bank failures

1