Republic Bank Slashes Rates on Tennessee Commerce Bank CDs


As I reported on Friday, Tennessee Commerce Bank (TCB) was closed by regulators, and the FDIC arranged for Republic Bank to assume all deposits. I just found out this morning that Republic Bank has decided on Tuesday to slash all TCB deposit rates to 0.05%. Also, this change will retroactively take effect on last Saturday (1/28/2012). This is what I was told when I called Republic Bank this morning at 877-684-2265. TCB depositors are free to close their CDs without early withdrawal penalties. With a new rate of only 0.05%, TCB depositors have no reason to wait before they move their money.

One thing I found dishonest is one of Republic Bank Q&As that was posted on its website. This Q&A suggested that CD rates would remain competitive. Below is an excerpt:

Q Will there be changes to my CD or IRA?
A You will continue to receive your interest payments as you have in the past. Your rates on your Certificates of Deposit may change to more competitive rates. As a deposit customer you will receive a letter from Republic Bank via U.S. Mail within 7 days of the transaction with an enclosure titled "Notice of Rate Changes to your Interest Bearing Deposits". Please read the document carefully.

Even in today's awful interest rate environment, a 0.05% is not competitive for any deposit account. Some average rates listed at the FDIC's Weekly National Rates and Rate Caps include: 0.32% for a 1-year CD, 0.72% for a 3-year CD and a 1.19% for a 5-year CD.

Unfortunately, the bank that acquires the deposits of a failed bank is allowed by law to lower CD rates, and they're allowed to change rates effective the day after the bank's closure. On the plus side, the acquiring bank is required to allow CD holders to make a penalty free early withdrawal.

Based on this rate cut, it certainly appears Republic Bank has no desire to keep TCB customers. I wonder if it might be due to TCB having many customers from outside of Tennessee. In the past years TCB had many savings account and CD specials, and accounts were available nationwide. A quote by Republic's chief executive in this The Tennessean article suggested that his main concern was the Nashville market:

Republic’s chief executive, Steve Trager, said virtually all Tennessee Commerce deposits will be protected and automatically transferred to Republic accounts.

“Our interest is gaining a foothold in the Nashville market,” Trager said.

In my opinion, if a bank wants to keep customers of a failed bank, it should keep the CD rates the same until maturity. As I reported on Friday, US Bank did this with the other Tennessee bank that failed on Friday, BankEast. On its website, US Bank stated that BankEast CD rates will remain the same.

Sometimes banks will say that they're changing a rate to what's competitive in the current environment. I don't consider that as fair even if the rate may be considered reasonable by today's standards. If they're going to lower the rates, it should be no lower than what was competitive when the CD was first issued. For example, if a problem bank sold 5-year CDs in 2008 with a 6.00% APY and that bank fails in 2012, how should that 5-year CD rate be changed? A bank that acquires that failed bank may think a 1.19% APY is fair since that's the current national average rate based on the FDIC numbers. That's not fair in my opinion. It should be no lower than the national average rate that was in effect when the CD was first issued in 2008. My guess for that average would be around 3.00%.

This issue is the main concern for depositors when banks fail. It hasn't been losing money from uninsured deposits. It has been losing CD rates. Since rates have fallen so much in the last few years, that can be a significant loss.

Thanks to readers who commented and emailed me about this rate change.

Bancxman (anonymous)   |     |   Comment #1
Ken, I think you're missing the point. I got this same treatment a few years ago when Beal Bank took over the parent of internet subsidiary Umbrella Bank. When a bank fails, the interest rate on all deposits becomes zero. In other words, depositors are owed nothing more than principle and accrued interest.  I agree that Republic Bank's effective devaluation of TCB's certificates of deposit could be seen as a slight against CD holders. But, you're also assuming that Republic Bank has some vested interested in holding those deposits. Like Beal, these guys are simply running off overpriced deposits, especially hot money, i.e. out-of-territory deposits. And TCB was full of the latter. A lot of these would inevitably have been withdrawn upon maturity anyway. In the interim, Republic would have been stuck with having to pay too much to keep them. Mr. Trager put it squarely: He wanted market access. That's all. Now that Republic Bank has its foot in the door, it can make an effort to attract new deposits from a stable local population of depositors.
Kaight   |     |   Comment #2
I agree with most of your thinking here, Ken.  Thank you for warning others.

However, I was in the midst of this and did not experience a retroactive rate cut.  It might be because I closed my CD account before they could dock me.  But our interest rate is (was) reported out (i.e., posted) on a daily basis here on the internet.  The posted rate for Saturday, Sunday, and Monday was the higher rate, i.e., circa 1.59%.  It was not until Tuesday that the lower, 0.05%, rate was reported out and posted.  I think most important of those three days was Monday.  Monday was a normal banking day, not a holiday or a special day.  Thus, it could be argued the bank had an obligation at least on that day, if not Saturday and Sunday as well, to report the lower rate to account holders.  But, again, the lower rate did not show up until Tuesday morning.

I collected all interest I was owed.  I know this because I calculated everything manually.  I was paid the correct amount of interest at the old (original) rate, right to the penny.  Of course it might have helped that I managed to close my account on Tuesday, before they had opportunity to dock me.

But in thinking this over, it is hard to believe the retroactivity charge, simply from the standpoint of practicality.  I know for certain the old TCB computer system, prior to Tuesday, had held the interest rate at the original level.  Thus it would be a manual computation for bank employees to dock customers retroactivly.  This would be coming in the midst of an overwhelming workload as customers all head for the exits simultaneously.  Tuesday and onward, of course, accounts were programmed to receive interest at  the new (ha! ha!) "competitive" 0.05% rate.  That would remove the manual computation aspect and clearly that is what happened.  But as for retroactivity, I am far less certain.  It did not happen to me.

If customers were docked retroactively, after seeing the higher rate here on the net for the three days, I should think such a thing illegal . . . and if not then surely immoral.  Of course we are dealing here with bankers' morality, and that is on an entirely different scale from the one used by decent people.  Bankers routinely do pretty much whatever they please while the tax money of decent Americans is confiscated to underwrite their follies.  So what else is new!  
Kaight   |     |   Comment #3
Bancxman, do not underestimate Ken.  He, and all regulars here on his blog, are well aware of what you wrote.  You merely described that which is de rigueur in these situations.

The offensive issue with Republic is their purposeful and deceitful misdirection, aka, lying.  Ken has documented and highlighted this very well.  It isn't about what Republic did.  It's about the fact they suggested they would do one thing, then instantly did something else entirely.  Their intent, obviously, was to entrap busy TCB account holders for a while at the 0.05% rate.  This gave Republic use of a lot of money, at least for a short time, essentially for free.  It is, IMHO, little more than white collar crime.  Certainly, for folks living in Kentucy or in Tennessee, Republic seems a good bank to eschew.  It is, quite clearly, a bank run by skunks.    
km (anonymous)   |     |   Comment #4
What are the options for cashing out and closing. I have a minimal checking and saving account and a large CD.
Kaight   |     |   Comment #5
km for goodness sake.  What are you waiting for!!  Call the bank.  Ask them to e-mail you the self-explanatory form.  You are losing money big time.  Call the bank NOW!!
Anonymous   |     |   Comment #6
I only had one CD with Republic years ago and when I realized how horrible their EWP was, I left for good when it matured and haven't been back since.  Now I am sure glad I did leave!
Bancxman (anonymous)   |     |   Comment #7
Kaight: Overreact much? I seriously doubt that Republic is going to transform its banking empire by holding a few hot deposits for a short time.  Since they're bearing the full cost of paying all of those transferred deposits, I doubt if they'll do much better than break even. Secondly, meaning no disrespect to Ken, I can't picture a bunch of depositors sitting on the edge of their seats waiting for an assuming megabank to make them any sort of deal.  That may work with community banks who want to keep up local goodwill but, in this case, I just don't buy it.  From previous experience, I can state that it takes about two week to collect your FDIC-insured funds from an assuming bank. That's the risk TCB depositors took for transacting with a known sharky bank. The upside is that, with interest rates so low, nobody is losing much unless they have a lot of money on deposit. In that context, uninsured depositors actually owe thanks to Republic for assuming their entire deposits. So, to conclude, there is no fraud here. Just a differnce in expectations.
Kaight   |     |   Comment #8
I just searched this thread for the word "fraud".  You're the only one who used the word, Bancxman.  Ken did not use the word;  neither did I.

In reading your post I'm aware of the possibility English is not your first language.  I'm respectful of that, and understand you might not be able to grasp the nuances of Ken's post or (less important) my own.  If English is your first language, I have to allow you might nevertheless read selectively, skipping over and ignoring words when it suits your purpose or helps a writing to fit your preconceived template.  Thus, I'll rest on my earlier statements.  I had "hands on" here and Ken is one of the leading authorities on these matters in the USA.  I'll just rest on that.

Oh, goodness, I nearly forgot your little personal barb, to wit:  "overreact much?".   Tell us, how long have you been struggling with your thinly diguised misogyny.  It's a new world out there, Bancxman.  You'd better learn to cope with it.
Art (anonymous)   |     |   Comment #9
Tell it to him Kaight!
Anonymous   |     |   Comment #10
Had the 30 mo promo cd @ 1.59% (w/penalty free cash-out) at Tenn Comm.-

Soon as I heard about the failure, faxed them instruction to place principal & accrued interest from last post (1/23 through 1/27/12) into existing savings account-

Within a few days they complied, and I withdrew $87K by ACH-

Wanted to put it in 5yr jumbo @ 2.57% at DCU anyway-

No drama...End of story (except that DCU tries to weasel out of that bonus rate, normally 2.32%)-
Bank hater
Bank hater (anonymous)   |     |   Comment #11
I have contacted the Clark Howard show and anticipate negative national exposure for Republic Bank & Trust Company. I expect a lot of tweeting as well about how this bank is ripping people off of their interest rate. Just because you can lower an interest rate doesn't mean that you should do it. I am going to run my money out of this bank. They are also the only bank left that is doing tax refund anticipation loans that help to take advantage of people by charging them to get their money back, when all they had to do was wait 7 days instead. Again, just because you can take advantage of people does not mean you should do it.
Anonymous   |     |   Comment #13
When banks contemplate purchase the assets of a failed bank they go over the numbers and see, for example, the deposits and average costs, etc.  From this they form a price to FDIC knowing what they expect to have in deposits AFTER a reduction in rates if they acquire the failed bank...all part of the calculus...and the FDIC knows it too...or does it?  Thus, the question really well does FDIC know this and obtain the best value based upon a change to "minimal" interest payments and whether it should be exercising some discretion in whether or not the acquiring bank can change rates!