Regulators close banks in Michigan, Pennsylvania

[December 11, 2010]  WASHINGTON (AP) -- Regulators on Friday shut down small banks in Michigan and Pennsylvania, boosting the number of U.S. banks that have failed this year to 151 as bad loans have mounted and the economy has been slow to heal.

The Federal Deposit Insurance Corp. took over Paramount Bank, based in Farmington Hills, Mich., with $252.7 million in assets and $213.6 million in deposits; and Earthstar Bank, based in Southampton, Pa., with $112.6 million in assets and $104.5 million in deposits.

Level One Bank, based in Farmington Hills, Mich., will assume the assets and deposits of Paramount Bank; Polonia Bank, based in Huntingdon Valley, Pa., is assuming all the deposits and $77.1 million of Earthstar Bank's loans and other assets.

In addition, the FDIC and Level One Bank agreed to share losses on $233.1 million of Paramount Bank's assets. The agency and Polonia Bank are sharing losses on $45.8 million of Earthstar Bank's assets.

The failure of Paramount Bank is expected to cost the deposit insurance fund $90.2 million; that of Earthstar Bank is expected to cost $22.9 million.

The 151 closures nationwide so far this year tops the 140 shuttered in all of 2009 and is the most in a year since the savings-and-loan crisis two decades ago. By this time last year, regulators had closed 133 banks.

The 2009 failures cost the insurance fund about $36 billion; the failures so far this year have cost around $21 billion, less because the banks failing in 2010 have on average been smaller. 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 out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $8 billion as of Sept. 30.

The number of banks on the FDIC's confidential "problem" list jumped to 860 in the third quarter from 829 three months earlier, even as the industry as a whole made $14.5 billion in net income. The 860 troubled banks is the highest number since 1993, during the savings-and-loan crisis.

The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.

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 in July.

[Associated Press]

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