Regulators close small Ill. bank; makes 23 in 2011

[February 26, 2011]  WASHINGTON (AP) -- Regulators on Friday shut down a small bank in Illinois, raising to 23 the number of U.S. bank failures this year after the limping economy and mounting soured loans felled 157 banks in 2010.

The Federal Deposit Insurance Corp. seized Valley Community Bank, based in St. Charles, Ill. The bank has five branches, $123.8 million in assets and $124.2 million in deposits.

First State Bank, based in Mendota, Ill., agreed to assume the assets and deposits of the failed bank.

The failure of Valley Community Bank is expected to cost the deposit insurance fund $22.8 million.

Illinois has been one of the hardest-hit states for bank failures amid an avalanche of bad loans -- especially for commercial real estate. Sixteen banks were shuttered in the state last year. The shutdown of Valley Community Bank was the second bank failure in Illinois this year.

California, Florida and Georgia also have seen large numbers of bank failures.

The 157 bank closures last year topped the 140 shuttered in 2009. It was the most in a year since the savings-and-loan crisis two decades ago.

The FDIC has said that 2010 likely would be the peak for bank failures.

The 2009 failures cost the insurance fund about $36 billion. The failures last year cost around $21 billion, a lower price tag because the banks that failed in 2010 were smaller on average. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing number of bank failures has sapped billions of dollars out of the deposit insurance fund. It fell into the red in 2009, and its deficit stood at $7.4 billion as of Dec. 31.

The number of banks on the FDIC's confidential "problem" list rose to 884 in the final quarter of last year from 860 three months earlier. The 884 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; By MARCY GORDON]

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