Large Banks That Failed
In 2009 we didn't see any banks larger than WaMu fail. WaMu's 2008 failure remains the largest U.S. bank failure on record. Nevertheless, several large banks failed. Seven had over $5 billion in assets. These included:
- Colonial Bank (AL) $25 billion
- Guaranty Bank (TX) - $13 billion
- BankUnited, FSB (FL) $12.8 billion
- United Commercial Bank (CA) $11.2 billion
- AmTrust Bank (OH) $8 billion
- Corus Bank, N.A. (IL) $7 billion
- First Federal Bank of California (CA) $6.1 billion
Out of the 140 bank failures in 2009, 77 of these occurred in just four states:
- GA 25
- IL 21
- CA 17
- FL 14
- MN 6
- TX 5
- AZ 5
- MI 4
- MO 4
Failed Banks That Weren't Acquired by Other Banks
The FDIC was able to find buyers for the vast majority of banks that failed. It was very common for the buyers to assume all deposits from the failed banks, even deposits over the FDIC limit. Out of the 140 bank failures, only 10 banks weren't taken over by another bank. Most were small banks. Only 4 had at least one billion in deposits. These included:
- Silverton Bank, NA in GA, $3.3 billion in deposits, No uninsured deposit (only served other banks)
- New Frontier Bank in CO, $1.5 billioin in deposits, $4 million of possibly uninsured deposits
- Community Bank of Nevada, $1.38 billion in deposits, $4.2 million of possibly uninsured deposits
- First Bank of Beverly Hills in CA, $1 billion in deposits, $179,000 of possibly uninsured deposits
Most with Uninsured Deposits Were Lucky in 2009
As can be seen above, very few depositors with uninsured deposits lost money in the 2009 bank failures. I wouldn't assume depositors will be this lucky for 2010. With the potential of many more bank failures, the FDIC may have a harder time finding buyers. Thus, it's wise to stay below the FDIC limit. The basic coverage limit is $250,000. It's important to note that this is scheduled to end on December 31, 2013 which means any CDs with terms of 4-years or longer that you get will mature after this date. If you decide to use different ownership categories to insure above the basic coverage limit, make sure the bank follows the FDIC rules (see #5 of my 2008 bank failure review).
Accessing Your Money if the FDIC Can't Find a Buyer
If another bank takes over your failed bank, you should continue to have access to your money with little change. However, if the FDIC can't find a buyer, the FDIC will mail you the check for your CD (insured principal and interest to the date of closure). It can take more than a week before you receive the check. An example of this happened at Community Bank of Nevada. One of this blog's readers had a CD at the bank before it was closed. The FDIC tried to mail him the check, but they used the wrong address. It took several weeks before he was able to get his money. Another reader was more fortunate. The check for his CD arrived just one week after the closure. He said he deposited the check into his Chase account, and Chase placed a 7-day hold on it.
The Loss of High CD Rates When Your Bank Fails
Depositors may have been lucky in avoiding the loss of uninsured deposits, but they weren't lucky with interest rates. With interest rates being very low this year, most buyers of failed banks chose not to honor existing CD rates to maturity. When a bank fails and is acquired by another bank, the buyer is allowed to lower rates on existing CDs at the date of the closure. Some depositors in 2009 had their CD rates cut from 5% to less than 2%.
If a bank does lower CD rates, depositors are allowed to make a penalty-free early withdrawal. This penalty-free early withdrawal doesn't help much in this awful interest rate environment. There was no way depositors could find CDs paying close to the rates there were getting.
The buyers of Irwin Union Bank, Mutual Bank and Imperial Capital Bank were examples of banks that decided to cut existing CD rates. A few banks did agree to honor existing CD rates. Three examples include NYCB which took over AmTrust, BBVA Compass which took over Guaranty Bank and East West Bank which took over United Commercial Bank.
Not All Bad News for Depositors
A failed bank is not always bad news for depositors. There have been cases in which the buyers of failed banks have offered some good deposit deals after the closures. The bad press of the closure can chase away depositors, so a buyer will occasionally offer very competitive deposit rates at the branches of the failed bank. Some example of this in 2009 included CD specials offered by BB&T at Colonial branches, CD specials offered by BBVA Compass at Guaranty Bank branches and competitive CD rates at BankUnited after a group of investors acquired the bank.
Credit Union Closures
Banks weren't the only institutions to fail. 15 federally insured credit unions were liquidated in 2009. The NCUA announced the last one on New Year's Eve. There was also one privately insured credit union that was liquidated (insured by the ASI).
What To Expect for 2010?
My guess for the number of 2010 bank failures is 300. This is just a quick guess on my part. Here's a guess that was mentioned by a banking expert in this Philly.com article:
Experts characterized the Federal Deposit Insurance Corp.'s closure of 140 banks across the country last year as a warm-up for the agency, whose board last month authorized a 55 percent increase in the FDIC budget and a 23 percent increase in staffing to 8,653.
This year, "on a conservative basis, you're going to have two, three, four times" last year's total of bank seizures, said Charles Wendel, founder of Financial Institutions Consulting Inc., of Ridgefield, Conn
I think it's safe to say we'll see more bank and credit union failures in 2010. So make sure you keep under the FDIC and NCUA coverage limits. Refer to the following references for more details:
References to Help Keep Your Deposits Safe:
- FDIC deposit insurance summary
- NCUA deposit insurance summary for credit unions
- Review of private deposit insurance for credit unions
- 10 Lessons from the 2008 bank failures
- Review of the 2008 credit union liquidations
- FDIC list of failed banks (sortable by state)
- NCUA list of 2009 credit union closures
- Full list of my 2009 bank failure posts
- Bank, Thrift and Credit Union Ratings [Bankrate.com]
- Bank and Credit Union Star Ratings [BauerFinancial]
- Banks with the highest levels of troubled loans [MSNBC]
- Calculated Risk's unofficial list of problem banks (link near the top of CR's right sidebar)