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4th Bank Failure of 2009: MagnetBank in Utah


MangnetBank was closed today by Utah regulators, and the FDIC was named receiver. Unlike the bank closures over the past year, the FDIC wasn't able to find a buyer to take over the failed bank's operations. So the FDIC closed all accounts and will be sending checks to depositors. According to the FDIC, depositors will receive checks within one week.

Here's the FDIC's press release, and here's a summary of the closure:
  • Closed Bank: MagnetBank
  • Location: Salt Lake City, UT
  • Size: 1 branch, $293 million assets, $283 million deposits
  • Possible Uninsured Deposits: none are estimated
  • Acquiring Bank: none
  • Cost to Deposit Insurance Fund: no estimate provided
  • Financial Ratings: 0 star (lowest) at BauerFinancial, 1 star (lowest) at Bankrate.com
This is the first time I've witness the FDIC close a bank rather than arrange for another bank to take it over. For those with CDs at this bank, here's what the FDIC states in its Q&A # 7:
Your CD will automatically be closed, and you will receive a check from the FDIC within one week of the closing. You will NOT be assessed an early withdrawal penalty.

If depositors had long-term CDs paying high rates, this will likely be a big disappointment. Also, there will be up to a week while the check is in the mail in which the money won't be earning interest. Those with brokered deposits may have to wait even longer since the FDIC requires documentation from the broker. Here's an excerpt from Q&A # 4:
If you are a customer who has a MagnetBank deposit through a broker, you must contact your broker with any questions. Once the FDIC receives a balanced investor file along with all the required documentation, from your broker, your insured funds will be wired to them on your behalf.

From the press release, the FDIC states that it appears there were no uninsured deposits at MagnetBank. However, the FDIC still has a Q&A for this case. If there are any depositors with over $250,000, they may have a longer wait since it may require a review with an FDIC claim agent.

One of the common FDIC myths is that the FDIC doesn't pay interest. This closure is yet another example proving this myth wrong. Here's what Q&A # 9 states:
All interest on insured deposits accrued through January 30, 2009 will be paid at your same rate. This will be included in the check you will receive from the FDIC within one week of the closing.

Both Bankrate and BauerFinancial were on target with the ratings for safety and soundness. Both had given the bank their lowest ratings.

Finally, I found it interesting that the FDIC did not provide an estimate of the cost to its Deposit Insurance Fund in its press release. They've always provided this for the closures of the past year. Perhaps an estimate is harder when there is no assuming bank. MagnetBank was a small bank so I would assume the cost will only be a small fraction of the Deposit Insurance Fund.

Thanks to the readers who emailed me news of this closure.

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Banking Guy
Banking Guy   |     |   Comment #1
Just noticed FDIC press releases for two more bank failures. Working on posts for those now.
Tsunami Cid
Tsunami Cid   |     |   Comment #2
What if a $250,000 check gets lost in the mail? What then? Can the FDIC void it and write another one? Seriously, assuming someone had their life's savings at an institution, it'd be scary to have that entire amount on a slip of paper.
Anonymous   |     |   Comment #3
Well, what about those who invested millions with Bernie Madoff and only have a "fake" statement to show for it? Those check amounts are typically transacted at home settlement proceedings. Normally, very large check amounts are sent by registered mail. Some companies might even force you to accept the funds via EFT method only. I personally would like to go right up to a teller window and demand a quarter of a million dollars on the spot from my account. They would have to take several hours to come up with all that money. Banks can request additional time to process withdrawals.