The FDIC is working out its exit strategy for some of the emergency liquidity measures it put in place a year ago. In each case, it seems, the exit strategy is a tricky matter. The Temporary Liquidity Guarantee Program (TLGP) debt guarantees are scheduled to expire at the end of October. This program has been a big success, guaranteeing huge amounts of bank debts and helping to stabilize the banking system so that none of those guarantees had to be paid. The FDIC is considering keeping the program on standby for a little longer in case a few specific banks might need it.
The temporarily increased deposit insurance limits cannot be removed so easily. Any substantial decrease in deposit insurance during a time of widespread financial stress in the banking industry could lead to a run on some of the larger banks, possibly triggering bank failures. It is safer to leave the expanded deposit insurance limits in place until the wave of bank failures has mostly passed.
Multiple reports since the middle of August had called for Corus to fail last week, and after the bank failure rumor on Wall Street, that expectation seemed like a consensus. The expectation turned out to be just one week early. Corus had $7 billion in deposits and a similar amount of assets. MB Financial Bank, which has been active of late in Illinois Bank failures, paid a slight premium for the deposits and purchased the most highly liquid assets.
The FDIC is holding an auction to sell the remaining assets around the end of the month. There are several real estate investment groups interested. Most of Corus’s troubled loans were said to be for condo development in South Florida, and real estate developers from that region are among those competing to buy Corus’s assets.
The high interest rates on Corus’s certificates of deposits let it make a huge volume of real estate development loans when the economy was booming, but put it in a squeeze as soon as the economy slowed in 2007. Corus had been drifting all this year as losses mounted and key executives resigned.
Corus also had significant losses in its office development loans. The FDIC has warned that commercial real estate loans could be an important factor in bank failures for the next year or two. In addition to its concentration of loans in Florida, Corus had loans in Nevada, Arizona, and California, other areas with overheated real estate markets.
For all its assets, Corus Bank had only 11 offices, yet these locations, in and north of Chicago, will boost MB Financial’s branch network in that area.
The FDIC estimates a cost of $1.7 billion for the Corus Bank closing.
Washington state closed Venture Bank. It was based in Lacey, Washington, and had 18 offices centered around Tacoma, Washington. It had nearly $1 billion in assets and $900 million in deposits.
Raleigh, North Carolina-based First Citizens Bank is purchasing the deposits and 90 percent of the assets. First Citizens Bank had already acquired a failed California bank, Temecula Valley Bank, in July. Prior to that, its regional presence extended from Maryland to Tennessee.
The FDIC estimates a cost of nearly $300 million from the Venture Bank closing.
A small bank in Minnesota failed. Brickwell Community Bank had one office in Woodbury, Minnesota, on the eastern edge of the Minneapolis-St. Paul suburbs. It had $63 million in deposits. Brickwell Community Bank opened for business five years ago, but never really got going, reporting more losses than profits. It lost nearly $3 million in the second quarter and had been operating under a cease-and-desist order from regulators since April. CorTrust Bank is purchasing the deposits and assets. The FDIC estimates its costs for this bank failure at $22 million.
