Regulators close banks in Illinois, Nevada

[February 28, 2009]  NEW YORK (AP) -- Regulators on Friday closed Heritage Community Bank in Illinois, and Security Savings Bank in Nevada, marking 16 failures this year of federally insured institutions.

The Federal Deposit Insurance Corp. was appointed the receiver of the banks.

Heritage Community Bank, based in Glenwood, Ill., had total assets of $232.9 million and deposits of $218.6 million as of Dec. 5. MB Financial Bank of Chicago agreed to assume all of Heritage's deposits, including those from brokers. All four of Heritage's branches will reopen on Saturday as branches of MB Financial.

Additionally, MB Financial agreed to buy $230.5 million in assets at a discount of $14.5 million. The FDIC will retain the remaining assets for a later sale. The FDIC and MB Financial also entered into a loss-sharing agreement in which MB Financial will share in the losses on about $181 million in assets.

Henderson, Nev.-based Security Savings Bank had total assets of about $238.3 million and deposits of $175.2 million as of Dec. 31. Las Vegas-based Bank of Nevada agreed to assume all of the deposits of Security Savings Bank, and purchase $111.3 million in assets. Security Savings' two offices will reopen Monday as Bank of Nevada branches.

The FDIC estimates that the cost to the deposit insurance fund from the closures will be about $100.7 million. Regular deposit accounts are insured up to $250,000.

The agency now expects bank failures will cost its insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion.

As unemployment rises and home prices fall, loan delinquencies and defaults are expected to keep soaring, which means bank failures are likely to escalate. The FDIC had 252 banks and thrifts on its list of troubled institutions at the end of 2008, up from 171 in the third quarter.

Facing a depleting insurance fund, federal regulators on Friday raised the fees banks pay and levied an emergency premium in a bid to collect $27 billion this year - placing further burden on an already struggling industry.

The law requires the insurance fund to be maintained at a certain minimum level of 1.15 percent of total insured deposits. But it fell below that minimum in mid-2008.

Twenty-five U.S. banks failed last year - including two of the biggest thrifts - more than in the previous five years combined and up from only three failures in 2007.

As a result, the deposit insurance fund dropped to $18.9 billion at Dec. 31 - the lowest level since 1987 - from $52.4 billion at the end of 2007.

President Barack Obama this week outlined a budget that called for spending up to $750 billion more for additional financial industry rescue efforts on top of the $700 billion Congress has already approved. The government also confirmed it will buy preferred shares from banks that can be converted into common shares, and the Treasury Department began to "stress test" the country's biggest banks to determine which might need more capital if the economy eroded further.

On Friday, the government announced plans to increase its stake in beleaguered Citigroup Inc. to as much as 36 percent by converting its preferred stock to common stock. While the conversion will dilute current shareholders' investments, a wider equity base means better protection against future losses.

Still, the news offered little comfort to investors who are worried about the stability of other banks.

[Associated Press; By SARA LEPRO]

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