Saturday, June 26, 2010

Unofficial Problem Bank List increases to 797 Institutions

by Bill McBride on 6/26/2010 09:16:00 AM

Note: this is an unofficial list of Problem Banks compiled only from public sources.

Here is the unofficial problem bank list for June 25, 2010.

Changes and comments from surferdude808:

CR provided a tease earlier on some of changes to the Unofficial Problem Bank List that would be happening as the FDIC released its enforcement actions for May yesterday. As CR predicted, it was a busy week as 24 institutions were added while 8 were removed. Also, the agencies issued numerous Prompt Corrective Action Orders.

Overall, the Unofficial Problem Bank List stands at 797 institutions with aggregate assets of $409.6 billion, up from 781 institutions with assets of $404.5 billion last week. Removals include the failed Peninsula Bank ($644 million), First National Bank ($253 million), and High Desert State Bank ($83 million). The FDIC terminated actions against De Witt State Bank ($39 million), Citizens State Bank of Lankin ($37 million), BankHaven ($22 million), and The Farmers Bank ($18 million). The other removal was for VisionBank of Iowa ($87 million) which merged with its affiliate sister bank -- Ames Community Bank ($383 million) that also happens to be on the Unofficial Problem Bank List as it is operating under a Written Agreement.

There were 24 institutions with aggregate assets of $6.5 billion added to the list this week. Notable additions include Bank of Choice, Greeley, CO ($1.3 billion); Nova Bank, Berwyn, PA ($598 million); CornerstoneBank, Atlanta, GA ($536 million); and Sterling Federal Bank, F.S.B., Sterling, IL ($501 million). Geographically, five institutions from Georgia, three from Missouri, and two from California, Colorado, Illinois, and Pennsylvania were added.

In a sign that the agencies may be taking their regulatory authority seriously, they issued 11 Prompt Corrective Action Orders against institutions on the Unofficial Problem Bank List. Generally, a PCA Order is a narrow enforcement action proscribing for an institution to raise its regulatory capital ratios by a certain date. As way of background, in 1991 via the Federal Deposit Insurance Corporation Improvement Act (FDICIA) Congress mandated for the regulators to take certain actions including closing troubled institutions promptly. The intent was to prevent a recurrence of the "zombie thrifts" that regulators allowed to stay open for many years despite being insolvent, which contributed the large price tag of the last banking crisis. The PCA legislation requires regulators to take certain actions that are triggered by so-called capital trip wires. For example, regulators are supposed to stop an institution from issuing brokered deposits or giving managers golden parachutes when they are no longer "well capitalized." Another trip wire requires for regulators to close an institution when its tangible capital ratio breeches 2 percent. The thinking behind this provision is that closure before equity goes negative would lessen losses to the deposit insurance fund and the potential that taxpayer monies would be needed to support resolutions. Some industry observers believe the regulators have been remiss in enforcing PCA, particularly the timely closing of insolvent institutions. To support this conclusion, observers point to Corus Bank and Guaranty Bank that posted negative equity in their Call Reports several quarters before they were closed or the substantial loss rates on failed institutions that reported satisfactory capital ratios just before failure.

The 11 institutions receiving a PCA Order include LibertyBank ($768 million); Butte Community Bank ($523 million Ticker: CVLL); Metro Bank of Dade County ($442 million); Ravenswood Bank ($301 million); SouthwestUSA Bank ($214 million); Blue Ridge Savings Bank, Inc. ($209 million); Legacy Bank ($169 million); Olde Cypress Community Bank ($169 million); Shoreline Bank ($110 million); Badger State Bank ($93 million); and Thunder Bank ($33 million).