Regulators close small banks in Okla., Wis.

[March 12, 2011]  WASHINGTON (AP) -- Regulators on Friday shut down small banks in Oklahoma and Wisconsin, lifting to 25 the number of U.S. bank failures this year after economic distress and soaring loan defaults brought down 157 banks in 2010.

The Federal Deposit Insurance Corp. seized First National Bank of Davis, with one office in Davis, Okla., $90.2 million in assets and $68.3 million in deposits; and minority-owned Legacy Bank in Milwaukee, also with one office, with $190.4 million in assets and $183.3 million in deposits.

Pauls Valley National Bank, based in Pauls Valley, Okla., agreed to assume all the deposits and $28.5 million of the loans and other assets of First National Bank of Davis. Chicago-based Seaway Bank and Trust Co. is assuming the deposits and $165.9 million of the assets of Legacy Bank. The FDIC will retain the rest of the failed banks' assets for future sale.

In addition, the FDIC and Seaway Bank and Trust agreed to share losses on $120 million of Legacy Bank's assets.

Legacy Bank received about $5.5 million in taxpayer funds in January 2009 under the government's financial bailout program, and it repaid only about $355,000 in dividends, Treasury Department data show. It was the eighth bank that received funds under the Troubled Asset Relief Program to have failed or filed for bankruptcy.

The eight banks are among 164 TARP recipients that have failed to pay quarterly dividends to Treasury, according to a tally by Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette.

The failure of First National Bank of Davis is expected to cost the deposit insurance fund $26.5 million; the failure of Legacy Bank is expected to cost $43.5 million.

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. Already this year the pace of closures has slowed: By this time last year, regulators had closed 30 banks.

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 were closed 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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