Federal regulators shut 3 more banks; 6 this year

[January 31, 2009]  WASHINGTON (AP) -- Federal regulators closed three banks on Friday - one each in Utah, Florida and Maryland - bringing to six the total number of failures this year.

The Federal Deposit Insurance Corp. was appointed receiver of the banks: MagnetBank of Salt Lake City, Ocala National Bank of Ocala, Fla., and Suburban Federal Savings Bank in Crofton, Md.

Twenty-five U.S. banks failed last year, far more than the previous five years combined. The trio of failures announced Friday matched the total for all of 2007.

It's expected that many more banks won't survive this year amid the pressures of tumbling home prices, rising mortgage foreclosures and tighter credit. Some may have to merge with other institutions.

The FDIC said it was unable to find another bank to take over the deposits and operations of MagnetBank, which had assets of $292.9 million and deposits of $282.8 million as of Dec. 2. As a result, the agency said checks will be mailed on Monday morning to retail depositors for the amount of their insured funds. Regular deposit accounts are insured up to $250,000.

CenterState Bank of Florida is assuming the deposits of Ocala National Bank, which had assets of $223.5 million and deposits of $205.2 million as of Dec. 31. CenterState also agreed to buy about $23.5 million of the failed bank's assets; the FDIC will retain the rest for eventual sale.

Ocala National's four locations will reopen Monday as branches of CenterState.

Bank of Essex in Tappahannock, Va., is taking over the deposits of Suburban Federal and agreed to share losses with the FDIC.

The federal Office of Thrift Supervision found that Suburban Federal was "critically" undercapitalized and in unsound condition, which the regulators blamed on a failure by the bank's directors and managers to oversee an aggressive program of mortgage and development lending that started in 2005.

Earlier this week, the thrift office gave Suburban Federal until Friday to find a buyer or be subject to a possible government takeover.

Suburban Federal had assets of about $360 million and deposits of $302 million as of Sept. 30. Besides assuming the deposits, Bank of Essex also agreed to buy about $348 million of the assets; the FDIC is retaining the rest.

The seven offices of Suburban Federal will reopen Saturday as branches of Bank of Essex.

The FDIC estimated that the resolution of the Suburban Federal case will cost the federal deposit insurance fund $126 million. It said the resolution of Ocala National will cost an estimated $99.6 million.

Since October, the Treasury Department has been using most of the first half of the $700 billion federal bailout fund to buy stock in banks and other financial institutions, with the idea that cash injections will spur banks to get lending again.

The government recently extended a new multibillion-dollar lifeline to the country's biggest bank by assets, Bank of America Corp., providing an additional $20 billion in support from the bailout fund on top of the $25 billion it previously received.

Officials have been considering several programs, including a government-run "bad bank" that would buy up troubled assets clogging banks' balance sheets, additional guarantees against losses like those granted to Bank of America Corp. and Citigroup Inc., and more capital injections. A Treasury spokesman on Friday said the administration would announce reforms to the bailout program "soon."

Seattle-based thrift Washington Mutual Inc. failed in late September, the biggest bank collapse in U.S. history. It had $307 billion in assets.

The FDIC estimates that through 2013, there will be about $40 billion in losses to the deposit insurance fund, including an $8.9 billion loss from the failure of IndyMac Bank last July. The agency has raised insurance premiums paid by banks and thrifts to replenish its fund, which now stands at around $34.6 billion, below the minimum target level set by Congress and the lowest level since 2003.

The FDIC has in place a program to guarantee as much as $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan. Under the program, which is meant to thaw the freeze in bank-to-bank lending, the FDIC is providing temporary insurance for loans between banks, guaranteeing the new debt in the event of payment default by the borrowing bank.

Of the roughly 8,500 federally insured banks and thrifts, the FDIC had 171 on its confidential list of troubled institutions as of Sept. 30 - a nearly 50 percent jump from the second quarter and the highest tally since late 1995.

[Associated Press; By MARCY GORDON]

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