FDIC closes banks in Michigan and California

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This makes three today.  Here is the California Press Release.  Note the enormous relative cost as a percentage of assets to the FDIC, which I have bolded.  No bank is taking the deposits or assets here:

The Federal Deposit Insurance Corporation (FDIC) approved the payout of the insured deposits of First Bank of Beverly Hills, Calabasas, California. The bank was closed today by the California Department of Financial Institutions, which appointed the FDIC as receiver.

For insured deposits placed directly with the bank and not through a broker, the FDIC will mail these customers checks for their insured funds on Monday. For insured deposits from brokers, the FDIC will pay the brokers directly once brokers provide the FDIC with the necessary documents. Brokered deposit customers should contact their brokers directly about the status of their accounts.

First Bank of Beverly Hills, as of December 31, 2008, had total assets of $1.5 billion and total deposits of $1 billion. It is estimated that the bank has $179,000 of uninsured deposits.

Customers who have questions about today’s transaction can call the FDIC toll free at 1-800-523-8089. The phone number will be operational this evening until 9:00 p.m. Pacific Daylight Time (PDT); on Saturday from 9:00 a.m. to 8:00 p.m. PDT; on Sunday from noon to 6:00 p.m. PDT; and thereafter from 8:00 a.m. to 8:00 p.m. PDT. Interested parties can also visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/beverlyhills.html.

First Bank of Beverly Hills is the 28th FDIC-insured institution to fail this year and the fourth in California. The last bank to be closed in the state was County Bank, Merced, on February 6, 2009. The FDIC estimates the cost of the failure to its Deposit Insurance Fund to be approximately $394 million.

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Then there is the bank in Michigan. You should note again that the cost to the FDIC is 40% of the total asset base. That’s enormous!

Also notice that with the other bank taking on the assets here, we still have huge losses for the FDIC:

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Michigan Heritage Bank, Farmington Hills, Michigan, was closed today by the Michigan Office of Financial and Insurance Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Level One Bank, Farmington Hills, Michigan, to assume all of the deposits, excluding those from brokers, of Michigan Heritage.

The three offices of Michigan Heritage will reopen on Monday as branches of Level One. Depositors of Michigan Heritage will automatically become depositors of Level One. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until Level One can fully integrate the deposit records of Michigan Heritage.

Over the weekend, depositors of Michigan Heritage can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2008, Michigan Heritage had total assets of approximately $184.6 million and total deposits of $151.7 million. Level One paid a premium of 1.16 percent to acquire the deposits of Michigan Heritage.

Level One will not assume $50 million in brokered deposits held by Michigan Heritage. The FDIC will pay the brokers directly for the amount of their funds. Customers who placed money with brokers should contact them directly for more information about the status of their deposits.

Customers who have questions about today’s transaction can call the FDIC toll-free at 1-866-954-9526. The phone number will be operational this evening until 9:00 p.m., Eastern Daylight Time (EDT); on Saturday from 9:00 a.m. to 6:00 p.m., EDT; on Sunday from noon to 6:00 p.m., EDT; and thereafter from 8:00 a.m. to 8:00 p.m., EDT. Customers who would like more information about today’s transaction can also visit the FDIC’s Web site at http://www.fdic.gov/bank/individual/failed/michiganheritage.html.

In addition to acquiring $101.7 million of the failed bank’s deposits, Level One agreed to purchase approximately $46.1 million in assets. The FDIC will retain any remaining assets for later disposition.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $71.3 million. Level One’s acquisition of all the deposits of Michigan Heritage was the “least costly” resolution for the FDIC’s Deposit Insurance Fund compared to alternatives. Michigan Heritage is the 27th bank to fail in the nation this year and the first in the state. The last bank to fail in Michigan was Main Street Bank, Northville, on October 10, 2008.

That makes 28 banks in the U.S. that have gone bust this year. These two small banks are bust and at huge cost to the FDIC relative to their asset bases. I hope this is not a pattern.

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