Jim Sinclair’s Commentary
Only two this weekend.
Regulators Close One Bank and One Credit Union
Friday, February 25, 2011 – 9:26 PM by
This was a quiet Friday for the FDIC. Only one bank was closed. Valley Community Bank became the 23rd bank failure of this year and the second in Illinois. Valley Community was a small bank with only 5 branches and total assets of $123.8 million.
At this time last year, there had been 22 bank failures for 2010. That’s close to this year’s number of 23, but we may start seeing more Fridays like today with fewer bank failures. The FDIC released its 2010 Q4 banking profile this week, and in the press release, Chairman Bair had the following statement: "we believe that the number of failures peaked in 2010, and we expect both the number and total assets of this year’s failures to be lower than last year’s."
The FDIC arranged for all deposit accounts, excluding some brokered deposits, to be assumed by First State Bank in Mendota, Illinois. There’s no indication that First State Bank has made a decision regarding CD rates at Valley Community Bank. One change I noticed in the FDIC’s Q&As, is that it mentions that if the new bank decides to lower the rates, the new rates will take effect the day after the bank was closed. Here are the exact words of the Q&A:
Current rates will be reviewed by the new bank and may be lowered effective the day after the bank was closed.
The problem with this is that it can take a week or longer before the CD account holders are informed of the decision.
One interesting thing about Valley Community Bank is that it had been offering a reward checking account since 2007. Rates had been competitive until November of 2009 when the yield plummeted from 2.51% to 0.88%. This 0.88% yield was close to the FDIC’s rate cap for interest checking accounts. These FDIC rate caps are intended for banks that are considered less-than-well capitalized.
