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Bank Failure Friday Texas Style

Four banks failed Friday, bringing the total for the year to 81. The largest by far was Guaranty Bank. With assets of $13 billion, the Austin-based savings and loan is the third-largest bank failure this year, behind Colonial BancGroup (assets: $25.5 billion) and BankUnited (assets: $13.7 billion). Two of the three banks -- Guaranty and BankUnited -- were regulated by the Office of Thrift Supervision.

The FDIC estimates that the failure will cost its insurance fund $3 billion. Guaranty's closure might accelerate a controversial plan by the FDIC to levy a special assessment fee against banks to help replenish the fund. As of March 31, the fund was down to $13 billion. By law, the agency must shore up the fund when the reserve ratio, or balance divided by insured deposits, falls below 1.15 percent. It was at 0.27 percent as of March 31, Bloomberg News reports, with bank failures in the past four months costing the FDIC more than $19 billion. 

The FDIC sold $12 billion of Guaranty's assets along with approximately $12 billion in deposits to Banco Bilbao Vizcaya Argentaria of Spain. To make the deal more palatable, the FDIC agreed to shoulder more than 80 percent of the losses from bad loans, amounting to about $9.7 billion. This is the first time since 1991 that "an overseas bank received federal assistance in a failed bank deal," according to the New York Times.

Like most of the banks that failed this year, Guaranty drowned under bad real estate loans. It lost $174 million in the second quarter alone. A third of Guaranty's single-family mortgage portfolio consisted of option adjustable rate mortgages, so called option ARMs, and the bank had $1.2 billion of loans to homebuilders, many of them in California, according to Fortune.

Among the three other banks that failed yesterday, two were in Georgia. The cost to the FDIC deposit fund from the Georgia failures was $111 million. A total of 18 banks have failed in Georgia in 2009. The deposits of First Coweta of Newnan and ebank of Atlanta were taken over by United Bank of Zebulon, Ga., and Stearns Bank, National Association of St. Cloud, Minn., respectively. Stearns Bank has acquired the deposits of five failed banks since the onset of the financial crisis.

Additionally, the FDIC closed CapitalSouth Bank of Birmingham, Ala. Its deposits were taken by IberiaBank of Lafayette, La. The total cost to the FDIC was $151 million.