Regulators shut bank in Georgia; 17 failures so far this year
WASHINGTON -- Regulators on Friday shut down Freedom Bank of Georgia, marking the 17th failure this year of a federally insured bank, and more are expected to succumb amid a deepening recession.
The Federal Deposit Insurance Corp. was appointed receiver of the bank, located in Commerce, Ga. It had about $173 million in assets and $161 million in deposits as of March 4.
The FDIC said the bank's deposits will be assumed by Northeast Georgia Bank, located in Lavonia, Ga. Its four branches will reopen Monday as offices of Northeast Georgia Bank.
Besides assuming the deposits of the failed bank, Northeast Georgia Bank agreed to buy about $167 million of its assets. The FDIC will retain the rest for eventual sale. The FDIC also entered into an agreement with Northeast Georgia Bank under which the bank will share in any losses on around $96.5 million of the failed bank's assets.
The FDIC estimates that the cost to the deposit insurance fund from the closing of Freedom Bank will be $36.2 million. Regular deposit accounts are insured up to $250,000.
As the economy sours, unemployment rises, home prices tumble and loan defaults soar, 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 law requires the fund to be maintained at a certain minimum level, but it fell below the mandated 1.15% of total insured deposits in mid-2008.
The FDIC now expects bank failures will cost the insurance fund around $65 billion through 2013, up from an earlier estimate of $40 billion.
The 17 bank collapses this year follow 25 failures in 2008, which included two of the biggest savings and loans, Washington Mutual and IndyMac Bank. Last year's total was more than in the previous five years combined and up from only three failures in 2007.
The FDIC had 252 banks and thrifts on its list of troubled institutions at the end of 2008, up from 171 in the third quarter.
The agency last week raised the fees that U.S. banks and thrifts pay, and levied a hefty emergency premium in a bid to collect $27 billion this year to replenish the insurance fund.
FDIC Chairman Sheila Bair warned this week that the fund could be wiped out this year without the new fees. She appears ready to cut the emergency fee in exchange for Congress more than tripling the agency's borrowing authority to $100 billion in federal aid if needed to build up the fund. And a new legislative proposal would provide for a possible temporary boost in that credit line with the Treasury Department to as much as $500 billion through the end of next year.
The agency has never drawn on that long-term credit line. Bair told lawmakers in letters Thursday that such an increase "would leave no doubt that the FDIC will have the resources necessary to address future contingencies and seamlessly fulfill the government's commitment to protect insured depositors against loss."
President Barack Obama has outlined a federal budget proposal that calls for spending up to $750 billion for additional financial industry rescue efforts atop the $700 billion Congress has already approved. And last week, the Treasury Department began to "stress test" the country's biggest banks to determine which might need more capital if the economy eroded further.
Citigroup and Bank of America, for example, have had to go back to the government well for more cash amid continuing losses from toxic assets and soured consumer loans. They each have received $45 billion in bailout money, and the government last week agreed to exchange up to $25 billion of Citigroup's portion for as much as a 36% equity stake in the struggling banking giant.