Regulators shut down Silverton Bank in Georgia on Friday and set up a temporary government-controlled bank until a buyer can be found. Silverton, which operated as a sort of wholesale bank, fell victim to large losses on real estate construction and development loans, regulators said.
The federal Office of the Comptroller of the Currency closed Silverton Bank, based in Atlanta, and appointed the Federal Deposit Insurance Corp. as receiver. Silverton Bank had about $4.1 billion in assets and $3.3 billion in deposits as of May 1.
Also closed Friday was Citizens Community Bank in Ridgewood, N.J., with roughly $45.1 million in assets and $43.7 million in deposits as of Dec. 31. Its deposits are being assumed by North Jersey Community Bank in Englewood Cliffs, and its sole office will reopen on Monday as a branch of that bank.
The two bank closings brought to 31 the number of bank failures this year in the U.S. That compares with 25 in all of last year and three in 2007.
The FDIC estimated that the cost to the deposit insurance fund from Silverton Bank’s failure will be $1.3 billion — the fourth-largest such loss since the financial crisis began felling banks last year.
The regulators have been shuttering failed banks and arranging the sale of their deposits and assets to other financial institutions. In the case of Silverton, however, a buyer couldn’t be found, and the FDIC took the less usual step of creating a so-called “bridge bank.” Agency officials said they expected it may continue in operation for around 60 to 90 days, though by law that could be extended for several years.
Silverton was a type of institution known as a correspondent bank and did not take deposits directly from the public or make loans to consumers. It provided services to around 1,400 client banks, such as credit-card operations, investments and loan purchases.
The FDIC said no “meaningful impact” on the client banks is expected from the creation of the new temporary bank, to be called Silverton Bridge Bank. The agency retained an institution named TIB-The Independent BankersBank, based in Irving, Texas, under contract to operate the new bank.
Around 400 institutions, mostly community banks, own stock in Silverton’s holding company, Silverton Financial Services Inc., and they will take investment losses as a result.
Silverton had been one of about 20 so-called “bankers’ banks” nationwide. They don’t normally engage in lending for construction and development, FDIC officials said. But Silverton changed to a status as a commercial bank within the category, switching from being a state-chartered institution to one under Treasury Department supervision — allowing it to branch into those lending activities.
Silverton was the 11th bank in Georgia to fail since the beginning of last year, more than in any other state. Last week American Southern Bank in Kennesaw, Ga., was seized. Most of the failures have involved banks in the Atlanta area, where the collapse of the real estate market brought economic dislocation.
“Bank performance, like that of other businesses, is a direct reflection of local economic conditions,” Joe Brannen, president and chief executive of the Georgia Bankers Association, said in a statement Friday. “The economy remains weak, so some banks continue to struggle. ... However, a majority of banks operating in Georgia meet the criteria for being well capitalized by regulators and have adequate reserves to weather the current stresses to the economy.”
As the economy nationwide has soured, amid rising unemployment, tumbling home prices and soaring loan defaults, bank failures have cascaded and sapped billions out of the deposit insurance fund. It now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.
The FDIC expects that bank failures will cost the insurance fund around $65 billion through 2013.
Next week the Federal Reserve will release results of “stress tests” for the 19 large banks at the center of the nation’s financial crisis. The results will shed light on which banks may need government support to withstand a more severe recession.
The biggest loss to the insurance fund, $10.7 billion, came from IndyMac Bank, the big California-based savings and loan that was closed by the government last July and operated under an FDIC conservatorship. The failures of Downey Savings & Loan in California and Franklin Bank in Texas, both in November, cost $1.37 billion and $1.36 billion, respectively.