Tuesday, December 08, 2009

Six Banks that Failed Last Week

Washington, DC is always a strange little bubble, but I was especially aware of it on this last visit. Compared to my part of Maine, in particular — which is quaint and lovely but undeniably ramshackle — it felt almost grotesquely shiny and prosperous.

The rest of the economy may be collapsing, but federal government employees – elected or appointed — aren't feeling that pain. They haven't lost their jobs. That's not to say that the DC area hasn't lost jobs: associations are suffering, municipal budgets are hurting, and the region's media organizations have been laying people off for a while. Even some law firms have made cuts. But DC has no feeling of grimness (which we have here), or even of scrambling and making do (which I felt on my last New York trip). Our elected officials may get the message when they come home at the holiday break, but Washington runs on the work of salaried employees who generally live inside the Beltway, and stay there.

I talked to a couple of people in DC who genuinely seemed to think the economy had started to recover. I hope it's true, but here in central Maine, it doesn't feel that way.

Among other business failures, 130 banks or savings and loans have failed so far this year. Six failed last Friday. In each case, no insured depositor lost money; the institutions were merged into other, healthier banks with only minor inconvenience to their customers, thanks to the good work of the FDIC and the marvel of deposit insurance.

You can argue that bank failures are a trailing indicator of economic distress, as it takes a while for people to default on loans, and for banks to feel the full impact of business failures and unemployment and income reductions. But they're also leading indicators, because every failed bank means one less source of new funds for small businesses and homebuyers, and one more sign of lost faith in an area's economic health.

1. Greater Atlantic Bank, Reston, Virginia. $203 million in assets, five branches, merged into Sonabank of McLean, VA. This savings and loan was the successor institution to one that had originally been chartered in 1887, and had been federally-insured since 1988. It had been looking for a merger partner since early this year, when its primary regulator, the Office of Thrift Supervision, placed it under a prompt corrective action (PCA) order following big losses.

2. Benchmark Bank, Aurora, IL. $170 million in assets, five branches, merged into MB Financial Bank, NA, of Chicago. Another old, old bank, originally chartered by the state of Illinois in 1898, and FDIC-insured since 1934. MB Financial has already said it will close three of Benchmark's five branches.

3. AmTrust Bank, Cleveland, OH. $12 billion in assets, 66 branches, merged into New York Community Bank, Westbury, NY. The closure was inevitable once AmTrust's parent, AmTrust Financial Corporation, filed for bankruptcy protection under Chapter 11 on November 30. AmTrust was a giant savings and loan, originally chartered in 1921, insured since 1938.

4. The Tattnall Bank, Reidsville, GA. $49.6 million, two branches, merged into HeritageBank of the South, Albany, GA. A small-town community bank, chartered in 1900, insured since 1934.

5. First Security National Bank, Norcross, GA. $128 million, four branches, merged into State Bank and Trust Company, Macon, GA. A newer bank, but still well-established, chartered and insured in 1985.

6. The Buckhead Community Bank, Atlanta, GA. $874 million, six branches, merged into State Bank and Trust Company, Macon, GA. The only bank on this list that could be considered a "boutique" institution, founded in 1998 to serve the residents of Buckhead, Atlanta's wealthiest neighborhood. Times are tough all over; earlier this year, it was reported that a fifth of Buckhead Community Bank's loans (mostly real estate) were in some form of delinquency or default.

2 comments:

Jack said...

Banks are not the source of any funds. Depositors are.

AnswerGirl said...

That's simpleminded, or a willful misunderstanding of my meaning. Depositors have no safe way of sharing their excess funds without an intermediary, which is the primary purpose of banks. A bank is a source of funds the way a faucet is a source of water.

Beyond that, through the multiplier effect and through the power of securitization — a genie that cannot be put back in the bottle, and is now a permanent element of our financial system, for better or worse — banks do, in fact, create money.