updated 1/23/2009 10:56:13 PM ET 2009-01-24T03:56:13

Regulators on Friday shut down 1st Centennial Bank in California, the third U.S. bank to fail this year.

California regulators closed the Redlands-based bank and appointed the Federal Deposit Insurance Corp. as receiver. 1st Centennial had assets of $803.3 million and deposits of $676.9 million as of Jan. 9.

The FDIC said 1st Centennial's insured deposits will be assumed by First California Bank, based in Westlake Village, Calif. Its six branches will reopen Monday as offices of First California.

The agency said patrons of 1st Centennial will continue to have full access to their deposits.

Regular deposit accounts are insured up to $250,000.

First California also will buy about $293 million of the failed bank's assets; the FDIC will retain the rest for eventual sale.

The FDIC estimated that the resolution of 1st Centennial will cost the federal deposit insurance fund $227 million.

1st Centennial was the third federally insured bank to fail and be shuttered by regulators this year amid the pressures of tumbling home prices, rising mortgage foreclosures and tighter credit. It's expected that many more banks won't survive this year's continued economic tumult, and some may have to merge with other institutions.

24 banks failed in 2008
Twenty-five U.S. banks succumbed last year, far more than those that failed in the previous five years combined. Only three failed in 2007.

Regulators in November closed two big thrifts — Downey Savings and Loan Association and PFF Bank & Trust — based in Southern California, an area of the country that's been battered by the mortgage and housing crises.

Since October, the Treasury Department has been using most of the first half of the $700 billion federal bailout fund to buy stock in banks and other financial institutions, with the idea that cash injections will spur banks to get lending again.

Last week, the government extended a new multibillion-dollar lifeline to the country's biggest bank by assets, Bank of America Corp., providing an additional $20 billion in support from the bailout fund on top of the $25 billion it previously received.

The Treasury, the Federal Reserve and the FDIC also agreed to participate in a program to provide guarantees against losses on about $118 billion in various types of loans and securities backed by the bank's residential and commercial real estate loans.

High-level officials in Washington are trying to find the best way to prod banks into lending more money, reaching for a solution 18 months after the most severe credit crisis in decades sent investors fleeing. U.S. officials have been discussing the notion of establishing a new government-backed bank to remove bad loans and other toxic assets from banks' balance sheets. In theory, with those assets gone, banks would be freer to make more loans.

Anger over bailout
This week the House voiced bipartisan anger over the bailout program, demanding more prudent spending of the remaining $350 billion with tighter oversight. President Barack Obama said Friday that any legislation governing the use of the second half of the money must include new measures to ensure accountability and transparency.

Seattle-based thrift Washington Mutual Inc. failed in late September, the biggest bank collapse in U.S. history. It had $307 billion in assets.

The FDIC estimates that through 2013, there will be about $40 billion in losses to the deposit insurance fund, including an $8.9 billion loss from the failure of IndyMac Bank last July. The agency has raised insurance premiums paid by banks and thrifts to replenish its fund, which now stands at around $34.6 billion, below the minimum target level set by Congress and the lowest level since 2003.

The FDIC has in place a program to guarantee as much as $1.4 trillion in U.S. banks' debt for more than three years as part of the government's financial rescue plan. Under the program, which is meant to thaw the freeze in bank-to-bank lending, the FDIC is providing temporary insurance for loans between banks, guaranteeing the new debt in the event of payment default by the borrowing bank.

Of the roughly 8,500 federally insured banks and thrifts, the FDIC had 171 on its confidential list of troubled institutions as of Sept. 30 — a nearly 50 percent jump from the second quarter and the highest tally since late 1995.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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