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Bank Failures Take Holiday

The FDIC finally has no thrift or bank failures to announce on a Friday.

A shocking bit of news on Friday came from the Federal Deposit Insurance Corporation, which didn't announce any bank or thrift closings, setting the agency up for its first weekend off in a month.

Because we have no new failures to discuss this week, this is a good time to recap the 19 failures so far this year.

Many of the figures for estimated losses to the FDIC's insurance fund, uninsured deposits and dividends paid on uninsured balances have changed since the original press releases announcing each failure.

When a bank or thrift is closed by a regulator and then placed in FDIC receivership, the FDIC then assesses the institution's assets and liabilities, and selects a buyer or buyers by determining which deal will lead to the smallest possible loss for the agency's deposit insurance fund.

In 12 out of 19 failures this year, the agency was able to sell all of the failed institution's deposits, including uninsured balances, thus leaving depositors with no losses -- a remarkable achievement, since this included Washington Mutual, which had a combined $45 billion in its two federal thrift charters, as of June 30.

2008 Bank and Thrift Failures ($Mil)
Click here for larger image.

For the other failed institutions, depositors with account balances exceeding deposit insurance limits became creditors to the FDIC receivership for the uninsured balances. Any payments received from the FDIC on these balances are called "dividends."

When announcing a bank or thrift failure with uninsured deposits not acquired by another institution, the FDIC sometimes announces an immediate payment of a percentage on uninsured balances. This is known as an advance dividend.

Advance dividends of 50% of were paid on uninsured deposit balances when IndyMac Bank and First Priority Bank failed. Unlike all the other 2008 failures, the July 11 closing of IndyMac Bank FSB didn't result in an acquisition by another bank. Instead, the FDIC placed the failed thrift into a conservatorship and transferred its assets and insured deposits into a new institution called IndyMac Federal Bank, FSB. The FDIC ran the new institution, winding down its business, so that only $2.7 million in total assets remained as of Sept. 30. First Priority's six branches and insured deposits were acquired by SunTrust .

In the other five failures with uninsured depositors taking losses, the highest payout as of Oct. 28 was for Hume Bank, where depositors had received dividends totaling 64% of their uninsured deposit balances. For ANB Financial, which had its insured deposits and nine branches acquired by Pulaski Bank & Trust of Little Rock, Ark. (held by IberiaBank) uninsured depositors had received dividends totaling 12%.

For the remaining three, Columbian Bank & Trust of Topeka, Kansas, Silver State Bank of Henderson, Nev. (acquired by Nevada State Bank, a subsidiary of Zions Bancorporation ), and Alpha Bank & Trust, of Alpharetta, Ga., no dividends had been paid to uninsured depositors as of Oct. 28.

Looking at the list of acquirers, SunTrust was not the only large regional holding company expanding its footprint by acquiring the branches of much smaller failed institutions. Regions Financial Integrity Bank of Alpharetta, Ga., and Fifth Third Bancorp took over all the deposits and branches of Freedom Bank of Bradenton, Fla.

With all the large holding companies we've mentioned receiving significant capital infusions through the Treasury's Capital Purchase Program, we may well see more acquisitions of this type as the crisis shakes out.

FDIC Deposit Insurance Fund

As of June 30, the market value of the cash and investments held by the Deposit Insurance Fund was $52.5 billion (which included the $8.9 billion lost when IndyMac failed). The Sept. 30 figure will be released on Nov. 25. FDIC spokesman David Barr said "it's difficult to back in to the current FDIC Deposit Insurance Fund Balance based on outflows for bank failures, because of constant inflows from deposit insurance assessments."

The FDIC was saved from a whopper of a loss when Washington Mutual was closed down by the Office of Thrift Supervision, since JPMorgan Chase agreed to acquire virtually the entire failed thrift holding company for $1.9 billion. This, of course, saved depositors from tremendous potential losses, as we discussed above.

Even more important for the FDIC, JPMorgan took Washington Mutual's entire loan portfolio, including the flaky option-ARMs, saving the FDIC from billions in losses if the agency were forced to liquidate the portfolio. Considering that JPMorgan took charges of $31.3 billion on the acquired loan portfolio, this deal really was a slam dunk for the FDIC.

Considering the number of failures we've seen this year, including some very large institutions, the estimated loss to uninsured depositors of $341 million as of Oct. 28 is a relatively small number. However, we need to emphasize again that the picture might have looked quite grim had JPMorgan not ridden to the rescue when Washington Mutual failed.

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