Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Two More Banks Go Belly Up


FDIC seizes, sells assets of defunct institutions.

The Federal Deposit and Insurance Corporation's (FDIC) $53 billion war chest is under attack.

Already forced to use almost 10% of its stash to repay depositors at now-defunct IndyMac, the FDIC will cough up another $860 million from its deposit insurance fund after seizing two more banks over the weekend.

On Friday, regulators took control of First National Bank of Nevada and First Heritage Bank of Newport Beach, California. Both are units of First National Bank Holding Company, headquartered in Scottsdale, Arizona. The FDIC, however, was able to avoid an IndyMac-style bank run by selling the failed institutions to Mutual of Omaha, a Nebraska bank.

All retail branches opened for normal business this morning, under the Mutual of Omaha name, avoiding check-cashing problems that still plague some IndyMac customers. Last week, after news leaked the FDIC wouldn't cover a portion of uninsured IndyMac deposits, Washington Mutual (WM) and Wells Fargo (WFC) balked at IndyMac checks, placing a hold on deposits until their value could be verified.

While small in comparison to IndyMac's $32 billion in assets, the two banks had almost $4 billion in combined assets, making the failures large by historical standards.

Working with the FDIC, the Office of Comptroller of the Currency issued a statement saying First National Bank of Nevada "was undercapitalized and had experienced substantial dissipation of assets and earnings due to unsafe and unsound practices." First Heritage was simply called "undercapitalized."

Both banks were active issuers of subprime mortgages. Now, with losses that outweigh capital reserves, regulators have taken preemptive action and seized the banks to prevent panic.

While the FDIC is aggressively staffing up in advance of more failures, its Chairman, Sheila Bair, is moving to assuage concerns it won't be able to live up to its obligations. In a press release last week, Bair reiterated the rights of American depositors and sought to inject confidence into the country's banking system:

"The banking system in this country remains on a solid footing through the guarantees provided by FDIC insurance. The overwhelming majority of banks in this country are safe and sound and the chances that your own bank could fail are remote. However, if that does happen, the FDIC will be there -- as always -- to protect your insured deposits."

The FDIC expects hundreds of banks to fail as a result of the current credit crisis, straining the cash its saved up to protect depositors. The seven failures so far this year tops the number of banks than went bust from 2004 through 2007, but is nowhere near the thousands that failed during the Savings and Loan crisis of the 1980s and 90s.

Today's financial system, however, bears little resemblance to 20 years ago. The shadow banking system and the vast interconnectedness of the world's financial institutions means no one bank can fail without potentially infecting its neighbors.

The FDIC has a tough road ahead.
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opin= =3D =3D3D ion about the performance of securities and financial markets by = the wr=3D iter=3D3D s whose articles appear on the site. The views expresse= d by the wri=3D ters are=3D3D not necessarily the views of Minyanville Medi= a, Inc. or members=3D of its man=3D3D agement. Nothing contained on the web= site is intended to con=3D stitute a recom=3D3D mendation or advice address= ed to an individual investor =3D or category of inve=3D3D stors to purchase= , sell or hold any security, or to =3D take any action with re=3D3D spect t= o the prospective movement of the securit=3D ies markets or to solicit t=3D= 3D he purchase or sale of any security. Any inv=3D estment decisions must b= e made =3D3D by the reader either individually or in =3D consultation with = his or her invest=3D3D ment professional. Minyanville write=3D rs and staff= may trade or hold position=3D3D s in securities that are discuss=3D ed in = articles appearing on the website. Wr=3D3D iters of articles are requir=3D = ed to disclose whether they have a position in =3D3D any stock or fund disc= us=3D sed in an article, but are not permitted to disclos=3D3D e the size o= r direct=3D ion of the position. Nothing on this website is intende=3D3D d = to solicit bus=3D iness of any kind for a writer's business or fund. Mi= ny=3D3D anville mana=3D gement and staff as well as contributing writers wi= ll not respo=3D3D nd to em=3D ails or other communications requesting inves= tment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos