U.S. Bank Failures Decline

By Mike Colpitts

Fewer U.S. banks have failed in 2011 compared to the mid-way point last year and had to be taken over by the FDIC as insolvent. The government has forced the takeover of just 48 banking institutions through last weekend, which is a major decline and expects fewer to fail by the end of the year than last year’s record number.

The Federal Deposit Insurance Corporation insures bank deposits and monitors the nation’s banking operations. Failures forced the FDIC to takeover 157 banks in 2010. “The pace of failures has slowed,” said La Juan Williams-Young, a spokesperson for the FDIC. “And we don’t expect as many to fail as last year.”

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The surge in forced bank failures taken over by the government has been largely a result of foreclosures, weakening bank balance sheets and eroding their financial capital. Bank failures peaked last year as a result of the financial crisis. There haven’t been as many government takeovers of banks since the early 1990s when the Savings & Loan Crisis damaged the industry.

Rock River Bank of Oregon, Illinois, was the latest bank to fail this past weekend. The FDIC entered into a purchase and assumption agreement with The Harvard State Bank, of Harvard, Illinois to assume all of the deposits of Rock River Bank.

The four branches of Rock River Bank reopened Monday as offices of The Harvard State Bank, which is customary in federal takeovers. Customers automatically became depositors of Rock River and accounts were insured by the FDIC under an agreement worked out by the government.

Rock River Bank had total assets of $77 million and deposits of about $75.8 million. The Harvard State Bank paid a premium of 2% to acquire all of the deposits of the failed bank. In addition to assuming all of the deposits, The Harvard State Bank agreed to purchase approximately $72.9 million of assets.

Six Illinois banks controlled by a family were taken over by the FDIC prior to the Rock River failure, The First State Bank of Winchester. The six failed Illinois banks made investments in risky Collateralized Debt Obligations (CDOs) and had been battling to stay in business for a number of years prior to the government seizure.