Friday, October 14, 2011

This Week in Bank Failures

Are a few of the largest U.S. banks getting together secretly to set debit card fees? Congress and an ATM group are separately asking for an investigation of the seemingly coordinated debit card fee announcements from some of the banking giants.

Governments of Belgium, France, and Luxembourg have substantially agreed on a Citibank-style rescue package for Dexia. The countries are guaranteeing some of the bank’s assets for the next 10 years and may ultimately be giving the bank about $50 billion. Importantly, these costs will not occur immediately for the countries involved, so the bailout will have little initial effect on the countries’ strained budgets. The bailout costs appear on the surface to be less than that of winding down the bank.

In China, the major banks are having problems with real estate loans, the result of a flawed stimulus program, and the sovereign wealth fund is trying to help by buying shares of the banks in the stock market.

Surveys show that most Americans are aware of Occupy Wall Street. The protests have been reported worldwide for a month, but took on a higher profile in the U.S. news media after city police set up an ambush to arrest 700 of the demonstrators in the largest mass arrest in U.S. history. Most Americans also agree with the protest’s central goals of limiting corporate power and raising income tax rates for millionaires.

At least 10 officers at United Commercial Bank, which failed two years ago in California, China, Taiwan, and Hong Kong, are facing criminal charges and other legal actions in connection with the failure. Regulators say the officers worked together to falsify documents to hide the bank’s financial condition from regulators, auditors, stockholders, and employees.

The current run of bank failures is virtually over, at least in the FDIC’s budget. The new budget works if there is about one bank failure per week through 2012 and no more than one per month after that. By adopting this rosy forecast, the FDIC can postpone until next year the need to raise additional funds from the banks it insures. But the FDIC forecast is so optimistic, it is not assured of holding up through the next six weeks of earnings reports, which so far for the banks have included signs of a U.S. economy under new stress.

At the very least, the hopes for a slowdown in bank failures will have to wait until next week. Tonight at closing time, four $200 million banks were closed by state regulators in New Jersey, Georgia, North Carolina, and Illinois.

The failed New Jersey bank was First State Bank, with offices in Cranford and Westfield in the New York City suburbs. Northfield Bank, based nearby in Staten Island, New York, is taking over the deposits and purchasing the assets. Northfield Bank will add the two branches to the six it already has in the east central part of New Jersey.

In Gray, Georgia, near the center of the state of Georgia, it was Piedmont Community Bank, which also had an office nearby in Macon. State Bank and Trust Company, which is based in Macon, is taking over the deposits and purchasing the assets. State Bank and Trust Company has made a business of acquiring failed Georgia banks, and says it plans to continue to operate the two branches.

In Asheville, North Carolina, the failed bank was Blue Ridge Savings Bank, which had 10 branches, including one in Greer, South Carolina. Bank of North Carolina is taking over the deposits and purchasing the assets. The new locations represent a natural geographical expansion for Bank of North Carolina.

In western Illinois, the two branches of Country Bank closed. Blackhawk Bank & Trust is taking over the deposits and purchasing most of the assets. Country Bank’s holding company borrowed $4 million in TARP funds and raised $1 million more in a 2010 stock offering, but it was not nearly enough to make up for the bank’s bad loans.