Regulators close Illinois bank

[August 14, 2010]  WASHINGTON (AP) -- Regulators on Friday shut down a bank in Illinois, bringing to 110 the number of U.S. bank failures this year amid mounting loan defaults.

The Federal Deposit Insurance Corp. took over Palos Bank and Trust Co., based in Palos Heights, Ill., with $493.4 million in assets and $467.8 million in deposits. First Midwest Bank, based in Itasca, Ill., agreed to assume the assets and deposits of the failed bank.

In addition, the FDIC and First Midwest Bank agreed to share losses on $343.8 million of Palos Bank's loans and other assets.

The failure of Palos Bank is expected to cost the deposit insurance fund $72 million.

It was the second straight week marked by the failure of an Illinois bank. Last week the FDIC seized Ravenswood Bank, a small bank in Chicago. The closure of Palos Bank brought to 14 the number of bank failures this year in Illinois.

With 110 closures nationwide so far this year, the pace of bank failures far outstrips that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 77 banks.

The pace has accelerated as banks' losses mount on loans made for commercial property and development. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.

The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing bank failures have sapped billions of dollars from the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.

The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.

The FDIC expects the cost of resolving failed banks to total around $60 billion from 2010 through 2014.

The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.

Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted last month.

[Associated Press; By MARCY GORDON]

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