Bank regulators closed Central Arizona Bank on Tuesday. This is the first Tuesday bank failure that I can remember. The vast majority of bank failures occur on Friday which gives the FDIC the weekend to transition the bank to a new owner. This non-Friday closure may have something to due with the bank's parent, Capitol Bancorp. Two other of this banking holding company's subsidiaries failed last Friday. As described in this Calculated Risk blog post, Capitol Bancorp has been havings problems for a while:
After controlling more than 50 banks at its peak, Capitol Bancorp has reduced its subsidiary count to 12 banks through intra-company mergers and divestitures to outside parties. Primarily, the mergers and sales are designed to raise capital or avert a failure.
The CR blog post also describes the Cross-Guaranty statue which allows the FDIC to recoup losses to its deposit fund by assessing a claim against banks under common control for losses caused by the failure of an affiliated bank. In summary, all subsidiaries of a bank holding company can be at risk when any subsidiaries fail. With this Cross-Guaranty statue, the "FDIC can demand reimbursement for the cost of a failure against any of Capitol Bancorp's still open banking subsidiaries." That can trigger the failure of all banking subsidiaries. If we see more Capitol Bancorp subsidiaries fail this week, we'll know this Cross-Guaranty statue is likely being used by the FDIC.
Other than the Tuesday failure and the Cross-Guaranty issue, this bank failure was typical with another bank assuming all deposits. Even brokered deposits were assumed. The acquiring bank is Western State Bank. It's based in North Dakota, but it has two branches in Arizona. So it looks like it's wanting to expand its Arizona presence.
The FDIC had the following message in its Q&As for this bank failure:
No one lost any money on deposit as a result of the closure of this bank. All deposits, regardless of dollar amount, were transferred to Western State Bank.
CD customers of the Central Arizona Bank will have to wait to see what happens with their rates. Western State Bank may reduce rates on the existing CDs. However, customers will be allowed to make a penalty-free early withdrawal.
Below is the summary of Tuesday's bank failure:
13th Bank Failure of 2013 (2nd in Arizona) (5/14/2013)
- Closed Bank: Central Arizona Bank, Scottsdale, AZ
- FDIC Press Release
- Size: 1 branch, $31.6 million in assets and $30.8 million in deposits
- Acquiring Bank: Western State Bank, Devils Lake, ND
- Possible Uninsured Deposits: all deposit accounts, including brokered deposits, have been assumed by Western State Bank (FDIC Q&A)
- Rate Changes: Central Arizona Bank's rates will be reviewed by Western State Bank and may be lowered (FDIC Q&A)
- Estimated Cost to Deposit Insurance Fund: $8.6 million
- Enforcement Action: FDIC 2/8/10 Consent Order, FDIC 2/22/11 PCA
- Financial Ratings: 1 star at Bankrate.com, 0 star at BauerFinancial, 1 star & Texas Ratio of 165.94% at DepositAccounts.com (see financial rating note)
Financial Ratings Notes: 0 star is lowest at BauerFinancial, 1 star is lowest at DepositAccounts.com & Bankrate.com, Texas Ratios over 100% is considered at risk. Ratings at DepositAccounts.com, at Bankrate.com and at BauerFinancial are based on December 31, 2012 data.
- FDIC list of failed banks
- Texas Ratios for banks and credit unions
- Latest FDIC info on deposit insurance
- My bank failure review posts
- Review of the 2012 bank and credit union failures
- Review of the 2011 bank and credit union failures
- Review of the 2010 bank and credit union failures
- 10 Lessons from the 2008 bank failures