FDIC seeks stronger rules for sale of failed banks
WASHINGTON — Two Illinois banks were shuttered Thursday as government regulators proposed new rules for private equity firms seeking to take over failed banks.
Regulators shut down John Warner Bank of Clinton, Ill., and First State Bank of Winchester in Winchester, Ill., bringing to 47 the number of U.S. bank failures this year.
The Federal Deposit Insurance Corp. was appointed receiver of both John Warner Bank and First State Bank.
Deposits of John Warner Bank were acquired by Lincoln, Ill.-based State Bank of Lincoln.
Three John Warner Bank offices were to reopen on Friday as branches of State Bank of Lincoln, the FDIC said in a statement.
As of April 30, The John Warner Bank had total assets of $70 million and total deposits of approximately $64 million. In addition to assuming all of the deposits of the failed bank, State Bank of Lincoln agreed to buy about $63 million of assets. The FDIC will retain the remaining assets for later disposition.
The FDIC estimated that the cost to the Deposit Insurance Fund will be $10 million.
The deposits of State Bank of Winchester were acquired by The First National Bank of Beardstown, Ill.
Two offices will reopen on Monday under the new bank name.
As of April 30, The First State Bank of Winchester had total assets of $36 million and total deposits of approximately $34 million. The First National Bank of Beardstown also agreed to buy about $33 million of assets. The FDIC says the cost to the Deposit Insurance Fund will be $6 million.
The two closings bring to eight the number of Illinois banks closed this year.
Under new rules proposed Thursday by the FDIC, private equity firms seeking to buy failed banks would face strict capitalization and disclosure requirements, but some regulators already warn the proposal may go too far.
The FDIC is seeking to expand the number of potential buyers for the growing number of banks it has closed during the financial crisis. With mounting interest from private equity firms, whose methods and motives aren’t always clear, the FDIC is trying to set requirements to ensure the banks won’t fail again.
One of the new proposals under discussion would require investors to maintain a healthy amount of cash in the banks they acquire, keeping them at about a 15-percent leverage ratio for three years. Most banks have lower leverage ratios, which measure capital divided by assets.
Investors also would have to own the banks for at least three years and face limits on their ability to lend to any of the owners’ affiliates.
Regulators said their intent was to tap into the potentially deep source of private equity, while ensuring that banks remain well capitalized once they are sold.
“We want nontraditional investors,” FDIC Chairman Sheila Bair said at the board meeting. “There is a significant need for capital and there is capital out there.”
Still, some regulators worried that the rules could stifle a potentially valuable new source of investment. Bair said the proposal was “solid,” but acknowledged that some details, including the high capital requirements, could be controversial.
Comptroller of the Currency John Dugan said that the rules, which will now be subject to public comment, may be too restrictive.
The proposals will be subject to a 30-day public comment period, after which the bank regulators likely will meet again to finalize the rules, said FDIC spokesman David Barr.
The FDIC monitors the health of banks to ensure that they have enough capital to stay afloat and cover their deposits. When banks get in trouble, the FDIC can seize and sell them. Prior to Thursday, the FDIC already had closed 45 banks this year, many of them community or regional institutions. That compares with 25 failures last year and three in 2007.
The FDIC already has brokered two sales this year to entities controlled by private equity firms. In March, the government sold IndyMac Federal Bank for $13.9 billion to a bank formed by investors that included billionaire George Soros and Dell Inc. founder Michael Dell.
But the business practices and ownership of the lightly regulated pools of investor funds often can be difficult to penetrate. The FDIC proposals include requirements meant to pry some information out of the investors, including disclosing the owners of private equity groups. The FDIC rules also would prevent the groups from using overseas secrecy laws to shield details of their operations.
Under the regulations, banks also would not be sold to investors with so-called “silo” structures that make it hard to determine who is behind a private equity group.
The FDIC had 305 banks with $220 billion of assets on its list of problem institutions at the end of the first quarter, the highest number since the 1994 savings and loan crisis.
__
AP Business Writer David Pitt reported from Des Moines, Iowa.
Related News
FDIC sells 40 percent stake in $4.5 billion worth of Corus Bank assets to Starwood-led groupOctober 6th, 2009 FDIC sells stake in Corus Bank assetsWASHINGTON — The Federal Deposit Insurance Corp. has agreed to sell a 40 percent stake in a portfolio of Corus Bank assets for $554.4 million to a private-equity consortium led by Starwood Capital Group.
FDIC names first winning bidder in program to back private buys of toxic mortgage assetsSeptember 16th, 2009 FDIC names first winner in toxic asset programWASHINGTON — The Federal Deposit Insurance Corp. on Wednesday named the first winning bidder under a test of the government's program to back private purchases of toxic mortgage assets and get them off banks' balance sheets.
FDIC urges buyers of failed banks to offer temporary mortgage aid for unemployed borrowersSeptember 11th, 2009 FDIC urges mortgage help for unemployedWASHINGTON — The Federal Deposit Insurance Corp. is encouraging companies that buy failed banks with troubled home loans to extend temporary help to people who have lost their jobs and can't pay their mortgage bills.
FDIC lengthens tougher capital, exam requirements for newer banks to 7 yearsAugust 28th, 2009 FDIC lengthens requirements for newer banksWASHINGTON — Federal banking officials worried about rising bank failures will require new banks to meet stricter regulatory standards for seven years rather than the previous three-year requirement. The new rules, outlined in a letter Friday from the U.S.
Hammered by bank failures, FDIC may need to draw cash from banks or governmentAugust 26th, 2009 Agency that insures bank deposits may need helpNEW YORK — The coffers of the Federal Deposit Insurance Corp. have been so depleted by the epidemic of collapsing financial institutions that analysts warn it could sink into the red by the end of this year.
Federal regulators ease rules for private investors seeking to buy failed banksAugust 26th, 2009 FDIC eases rules for private buys of failed banksWASHINGTON — Squeezed by rising bank failures, regulators made it easier Wednesday for private investors to buy failed institutions. The Federal Deposit Insurance Corp.'s board voted 4-1 to reduce the cash that private equity funds must maintain in banks they acquire.
Features of private equity industry, which may acquire more failed banksAugust 25th, 2009 Features of private equity industryAs bank failures mount, regulators are looking more favorably on private equity investors that want to acquire failed institutions. The FDIC board, meeting in a public session Wednesday, is expected to ease restrictions proposed for private equity firms early last month, people familiar with the issue say.
As more banks fail, FDIC likely to ease rules for private investors to buy ailing institutionsAugust 25th, 2009 As more banks fail, private investors gain favorWASHINGTON — As the tally of U.S. bank failures mounts, federal regulators could be extending an embrace to private investors seeking to buy failed institutions.
FDIC may temper proposed restrictions on private equity firms seeking to buy failed banksAugust 20th, 2009 FDIC may ease private equity buys of failed banksWASHINGTON — Federal regulators appear ready to temper proposed restrictions on private equity firms seeking to buy failed banks, as the government seeks to lure more potential purchasers amid a mounting tally of collapsed financial institutions. The Federal Deposit Insurance Corp., which proposed the new policy last month, is expected to make the changes when its board meets on Aug.
7 more banks fail as FDIC seeks stronger rules for buyers of failed banksJuly 3rd, 2009 7 more banks fail as FDIC mulls rules for salesWASHINGTON — Six Illinois banks and one bank in Texas were shuttered Thursday as government regulators proposed new rules for private equity firms seeking to take over failed banks. Regulators shut down John Warner Bank of Clinton, Ill.; First State Bank of Winchester in Winchester, Ill.; Rock River Bank of Oregon, Ill.; Elizabeth State Bank of Elizabeth, Ill.; Danville, Ill.-based The First National Bank of Danville; Founders Bank of Worth, Ill.; and Dallas-based Millennium State Bank of Texas, bringing the number of U.S.
3 more banks fail as FDIC seeks stronger rules for buyers of failed banksJuly 3rd, 2009 3 more banks fail as FDIC mulls rules for salesWASHINGTON — Three Illinois banks were shuttered Thursday as government regulators proposed new rules for private equity firms seeking to take over failed banks. Regulators shut down John Warner Bank of Clinton, Ill.; First State Bank of Winchester in Winchester, Ill.; and Rock River Bank of Oregon, Ill., bringing to 48 the number of U.S.
FDIC looks for ways to draw private equity buyers into auctions for failed banksJuly 2nd, 2009 FDIC seeks more investor interest in failed banksWASHINGTON — The Federal Deposit Insurance Corp. proposed new guidelines Thursday for potential buyers of failed banks as the government seeks to sell a growing number of closed financial institutions.
2 more banks fail as FDIC seeks stronger rules for buyers of failed banksJuly 2nd, 2009 2 more banks fail as FDIC mulls rules for salesWASHINGTON — Two Illinois banks were shuttered Thursday as government regulators proposed new rules for private equity firms seeking to take over failed banks. Regulators shut down John Warner Bank of Clinton, Ill., and First State Bank of Winchester in Winchester, Ill., bringing to 47 the number of U.S.
More banks fail as FDIC seeks stronger rules for bank buyersJuly 2nd, 2009 BanksWASHINGTON — Two Illinois banks were shuttered Thursday as government regulators proposed new rules for private equity firms seeking to take over failed banks. Regulators shut down John Warner Bank of Clinton, Ill., and First State Bank of Winchester in Winchester, Ill., bringing to 47 the number of U.S.
FDIC halts efforts to sell failed Silverton Bank; 'bridge bank' shut downJune 5th, 2009 FDIC stops efforts to sell failed Silverton BankWASHINGTON — Federal regulators have abandoned efforts to sell failed Silverton Bank in Georgia to investors and are shutting the temporary "bridge bank" they set up to replace it last month. Atlanta-based Silverton, which operated as a sort of wholesale bank, fell victim to large losses on real estate construction and development loans, and was closed by regulators on May 1.
Loading ...