Regulators close banks in Colorado, Mich., Minn.

[October 03, 2009]  NEW YORK (AP) -- Regulators have shut Warren Bank in Warren, Mich., and two small banks in Colorado and Minnesota, boosting the number of failed U.S. banks this year to 98 as loan defaults rise in the worst financial climate in decades.

The Federal Deposit Insurance Corp. took over Warren Bank, with about $538 million in assets and $501 million in deposits as of July 31. The Huntington National Bank, based in Columbus, Ohio, agreed to assume the deposits and about $83 million of the assets of the failed bank. The FDIC will retain the remaining assets for later disposition.

Warren Bank's six branches will reopen Saturday as offices of Huntington National Bank.

The failure of Warren Bank is expected to cost the deposit insurance fund an estimated $275 million.

Regulators also shut the much smaller Jennings State Bank, in Spring Grove, Minn. Central Bank of Stillwater, Minn., agreed to assume the bank's $52.4 million in deposits and essentially all the bank's assets, which totaled $56.3 million on July 31.

In addition, the FDIC and Central Bank agreed to share losses on about $37.7 million of Jennings State Bank's assets.

The FDIC estimates the closing of Jennings State Bank will cost the deposit insurance fund about $11.7 million.

Regulators shut a third bank, the Southern Colorado National Bank in Pueblo, Colo. Legacy Bank of Wiley, Colo., agreed to assume the deposits and essentially all the assets of Southern Colorado National Bank. As of Sept. 4, deposits stood at $31.9 million and assets totaled $39.5 million.

The two branches of Southern Colorado National Bank will reopen Saturday as Legacy Bank offices.

The FDIC and Legacy Bank agreed to share losses on about $25.5 million of Southern Colorado National Bank's assets.

The FDIC said the closing will cost the deposit insurance fund about $6.6 million.

Ninety-eight banks have failed so far this year as losses have mounted on commercial real estate and other soured loans in the wake of the financial crisis and the recession that has gripped the economy. The failures have cost the fund that insures bank deposits about $25 billion, the FDIC said Tuesday.

The fund has been so sapped by the wave of collapsing banks that it now has fallen into the red. The FDIC now expects the cost of bank failures to grow to about $100 billion over the next four years - up from an estimate of $70 billion made in the spring. Most of the $100 billion in costs are expected to come from failures this year and next.

Faced with that sobering prospect, the FDIC board took the unprecedented step Tuesday of proposing to have U.S. banks prepay $45 billion, or three years' worth, of insurance premiums.

The plan won't provide a long-term remedy for the depleted fund but would spare ailing banks the immediate cost of an alternative idea: paying an emergency fee for the second time this year. And most banks likely would be able to prepay their premiums without having to reduce lending to businesses and consumers.

The FDIC is fully backed by the government. That means depositors' money is guaranteed up to $250,000 per account. And the agency still has billions in loss reserves - including about $22 billion in cash - apart from the insurance fund.

The number of banks on the FDIC's confidential "problem list" jumped to 416 at the end of June from 305 in the first quarter. That's the highest number since June 1994, during the savings-and-loan crisis.

On Aug. 21, Guaranty Bank became the second-largest U.S. bank to fail this year after the big Texas lender was shut down and most of its operations sold at a loss of billions of dollars for the government to a major Spanish bank. The failure, the 10th-largest in U.S. history, is expected to cost the insurance fund an estimated $3 billion.

The sale of most of Austin-based Guaranty's operations to the U.S. division of Banco Bilbao Vizcaya Argentaria SA, Spain's No. 2 bank, marked the first time a foreign bank has bought a failed American bank during the current financial crisis.

And on Aug. 14, Colonial Bank, a big lender in real estate development, was shuttered and became the biggest U.S. bank to fail this year and the sixth-largest in U.S. history, with about $25 billion in assets. The government approved the sale of Montgomery, Ala.-based Colonial's $20 billion in deposits and about $22 billion of its assets to BB&T Corp. Colonial was a major lender to developers in Florida and Nevada and was hit hard by the collapse of the real estate market in those states.

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Gordon reported from Washington.

[Associated Press; By TIM PARADIS and MARCY GORDON]

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