An overall struggling economy continues to push banks into the red. Factors like the receding housing market, continually increasing loan defaults and a 9.1 percent national unemployment rate have contributed to American’s inability to keep in good standing with their loans. The increased level of defaults have played a harsh, cyclical role in 2011 bank failures.
The Aftermath of The First National Bank of Florida
The official bank failure count for 2011 has reached 71, due to the fall of The First National Bank of Florida on September 9. The Federal Deposit Insurance Corporation (FDIC), charged with collecting and selling the assets of failed institutions, was named the receiver of The First National Bank of Florida’s $296.8 million in assets.
CharterBank, located in West Point, Georgia, entered into a transaction with the FDIC for $216.3 million, a bulk of The First National Bank of Florida’s remaining assets. This closeout effort cost the FDIC $46.9 million to carry out.
A week prior to The First National Bank of Florida, the FDIC zeroed-in on Patriot Bank and CreekSide Bank, two Georgia-based institutions. Their combined assets amounted to $253.1 million, and took $71.7 million from the FDIC’s reserve to orchestrate the close.
FDIC Unanimously Vote for Living Will Requirement
On September 13, 2011, the FDIC came together unanimously with a 3-0 vote to approve rules requiring systemically significant banks with $50 billion or more in assets to draft a so-called “living will.” This plan is to include details on the bank’s operation, structure, assets and liability, capital buffers, existing debt with other large institutions and their plan of action should they go under.
The measure was enacted to reduce the likelihood of another government bailout, and also empowers regulators to seize and liquidize banks if the failure poses a significant risk to the overall economy.
These new rules will affect 124 financial firms, who must now present their plans by July 2012. Other insured institutions with smaller assets will needs to draft plans by 2013. After these deadlines, annual plan submissions are to be submitted to the FDIC for review.
Thomas Curry, an FDIC board member noted, “The real hard work is just beginning… I think it’s critically important that the agencies exercise substantial judgment and review these plans in a thorough and balanced manner.”
As the regulator of these institutions, the new rules would permit the FDIC the authority to have banks revise their proposed plans or alter their operation, if needed. In addition, any operational changes made to a living will must be submitted to the FDIC within 45 days. Ensuring that the FDIC is kept well-informed with blueprints from the largest financial powerhouses enables them to take action effectively and efficiently should another bank find themselves near collapse.
