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Failure Friday Twofer Brings Bank Toll to 94

The FDIC assumed control of two more banks on Friday, bringing the total number of bank failures for the year to 94. The banks were both subsidiaries of Irwin Financial Corporation of Columbus, Ind. The FDIC estimates the total cost to the agency for the combined failures of Kentucky-based Irwin Union Bank and Indiana-based Irwin Union Bank and Trust Company will be $850 million. (Check out our interactive list of failed banks this year.)

On Friday, FDIC Chairman Sheila Bair said that the agency may be forced to tap a $500 billion credit line it has with the U.S. Treasury to replenish its dwindling deposit fund. Congress mandates that the minimum level for the FDIC fund should be 1.15 percent of total insured deposits. As of June, the fund stood at just $10.4 billion, or 0.22 percent of insured deposits.

Irwin Financial Corporation dates its history back to 1863, when Joseph Ireland Irwin, the owner of a mercantile store in Columbus, began holding his customers' money in the shop safe. In 1871, Irwin legally established the bank.

In 1981, the company acquired a mortgage bank in Indianapolis. By 1995, it was writing mortgages and home equity loans in 24 states, with a particular focus in California. The bank sowed the seeds of its destruction even as it racked up record earnings in the early part of this decade. When the economy turned, so did all of those loans. The company lost more than $450 million in the last six quarters, according to the Associated Press.

On Tuesday, the Federal Reserve issued a cease and desist order against Irwin demanding that it raise more capital by the end of the month. The following day, the bank admitted that there was no way it could find the funds. On Friday, the FDIC entered into a purchase and assumption agreement with First Financial Bank of Hamilton, Ohio, to assume all the deposits of the two banks.

The FDIC last closed insured banks in Indiana and Kentucky in 1992 and 1991, respectively.