Washington state bank is shut; 44 failures in 2011

[May 28, 2011]  WASHINGTON (AP) -- Regulators on Friday shut down a small bank in Washington state, pushing to 44 the number of U.S. bank failures this year in the wake of a severe recession and mounting troubled loans.

The pace of closures has slowed, however, as the economy improves and banks work their way through the bad debt. By this time last year, regulators had closed 78 banks.

The Federal Deposit Insurance Corp. seized Snohomish, Wash.-based First Heritage Bank, with $173.5 million in assets and $163.3 million in deposits. Tacoma, Wash.-based Columbia State Bank has agreed to assume the assets and deposits of the failed bank.

In addition, the FDIC and Columbia State Bank have agreed to share losses on $142.2 million of First Heritage Bank's loans and other assets.

The failure of First Heritage Bank is expected to cost the deposit insurance fund $34.9 million.

In 2010 regulators seized 157 banks, the most in a year since the savings-and-loan crisis two decades ago.

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

There were 140 bank failures in 2009, costing 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.

From 2008, the year the financial crisis struck, through 2010, bank failures cost the fund $76.8 billion. The deposit insurance fund fell into the red in 2009. With failures slowing, its deficit narrowed in the first quarter of this year and stood at about $1 billion as of March 31.

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 last July.

The number of banks on the FDIC's confidential "problem" list edged up to 888 in the January-March quarter from 884 as of Dec. 31. The 888 troubled banks is the highest number since 1993, during the savings-and-loan crisis.

[Associated Press]

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