7 More Banks Fail as FDIC Mulls Rules for Sales

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. bank failures this year to 52.

That's more than double the 25 which failed in all of 2008 and the three closed in 2007. The Federal Deposit Insurance Corp. was appointed receiver of all seven. The total cost to the Deposit Insurance Fund from the seven closings will be $314.3 million, the FDIC said.

The failure of the six Illinois banks, which are all controlled by one family, resulted primarily from losses on investments in risky instruments known as collateralized debt obligations and other loan losses, the FDIC said. The closings bring to 12 the number of Illinois banks closed this year.

Deposits of John Warner Bank were acquired by Lincoln, Ill.-based State Bank of Lincoln. Three John Warner Bank branches will 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 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 deposits of First State Bank of Winchester were acquired by Beardstown, Ill.-based The First National Bank of Beardstown. Two offices will reopen on Monday under the new bank name.

The First State Bank of Winchester had total assets of $36 million and total deposits of approximately $34 million as of April 30. The First National Bank of Beardstown also agreed to buy about $33 million of assets.