Friday, September 13, 2013

This Week in Bank Failures

To avoid potential confusion about what deposits are covered by deposit insurance, the FDIC adopted new rules about deposits in foreign branches of U.S.-based banks, such as the London offices of Wall Street banks. These foreign branch deposits have never been subject to U.S. deposit insurance, and the new rules are meant to make sure that they will not become subject to U.S. deposit insurance even if banks adjust the way the deposits are payable. The FDIC specifically emphasizes that deposits in a U.K. branch of a U.S.-based bank, dually payable in the U.K. and the U.S., still would not be covered by the FDIC. Depositors can, of course, get FDIC deposit insurance by moving their deposits to a U.S. branch of the same bank.

A medium-large bank failed tonight. The O.C.C. closed Edinburg, Texas-based First National Bank, a $3 billion bank that had 51 branches, including two doing business under the name The National Bank of El Paso.

Dallas-based PlainsCapital Bank is taking over the deposits and purchasing most of the assets. In a statement PlainsCapital Bank said the acquisition enabled it to expand its presence in south, southwest, and west parts of Texas.

The failed bank had one of the highest CD interest rates in the state. When a bank pays unusually high interest rates on deposits it can sometimes be a sign that it has lost the confidence of its customers.

There was one other bank failure tonight. State regulators closed The Community’s Bank in Bridgeport, Connecticut. The bank had $26 million in deposits and a similar amount in assets. The FDIC will mail checks to the bank’s 1,000 depositors for their insured deposits and will hold on to the failed bank’s assets for now. It is the first bank failure in Connecticut in 11 years.