About Ken Tumin

Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Rare Tuesday Bank Failure in Arizona


Rare Tuesday Bank Failure in Arizona

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.


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Anonymous   |     |   Comment #1
I believe the last time a bank failed on a day other than Friday was when BankUnited, FSB failed on Thursday May 21, 2009.  Prior to that was the failure of WaMu on Thurdsay September 25, 2008.
pearlbrown   |     |   Comment #2
Public Savings Bank in Huntingdon Valley, PA was closed on Thursday 8/18/11 . Why Thursday? This blog post from Ken explains:

The FDIC took the unusual step of closing the bank on a Thursday instead of a Friday, as is typical, because of the bank's close connection to an Orthodox Jewish community, according to an FDIC spokeswoman.
pua   |     |   Comment #3
Statute, not statue
Anonymous   |     |   Comment #4
thought it was salute not astute
Anonymous   |     |   Comment #5
In general, what happens when another bank takes over due to bank failure?  Do the CD rates continue based on the former bank's agreement?  What about  the reward checking account at credit unions?  Does the take over bank honor those rates?
pearlbrown   |     |   Comment #6
Re Anonymous - #5, Thursday, May 16, 2013 - 11:04 AM

The answer is:  it depends.  Some institutions choose to continue to honor the CD rates, but others do not.  At that point you have an opportunity to withdraw your money before the account is converted to one with a lower rate.  Also, the institution may decide to offer different terms for different customers. 

As far as reward checking accounts and other deposit products, the answer is also "it depends"

You'll find more info in Ken's blog post Your rights when your bank fails and a new bank takes over