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Oh, Atlanta: A Banker's Bank Goes Down

Three banks failed on Friday, with the FDIC closing institutions in Georgia, New Jersey and Utah. The total number of bank failures for the year is now at 32. By far the most troubling of the bunch on Friday was Silverton Bank of Atlanta, which the FDIC estimates will cost the deposit fund $1.3 billion.

Silverton acted as a banker for other banks, known in the trade as a correspondent bank. It had $4.1 billion in assets. It did not take deposits from the general public nor make loans directly to consumers, and consequently, there were no anxious customers banging on branch doors to get their money. Instead, the FDIC had a conference call on Saturday with anxious client banks. About 1,400 banks in 44 states used Silverton's services, according to the FDIC. The federal agency planned to explain to the banks how a new entity it has created, called Silverton Bridge Bank, National Association, will unwind Silverton's activities in a way that causes the least amount of disruption to its clients. The fallout from Silverton's failure -- and the hit its client banks will take -- remains unclear.

The Atlanta Business Chronicle has a good article on how Silverton went from a small bank founded in the mid-1980s to the nation's largest correspondent bank, providing loans and a check clearinghouse, and processing federal funds repayments. Where Silverton appears to have done the most damage is by selling pieces of real estate loans to other banks in low-growth areas. Reuters picks up what has now become a familiar story. Weighted down by bad construction and development loans, federal regulators belatedly demanded that Silverton clean up its act and raise more capital, but by that time it was too late.

In comparison to Silverton, the failures of Citizens Community Bank of Ridgewood, N.J., and America West Bank of Layton, Utah, seem minor. The FDIC fund took hits of $18.1 million and $119.4 million, respectively, on the two closings. North Jersey Community Bank of Englewood Cliffs will take the deposits of Citizens Community Bank. In Utah, Cache Valley Bank of Logan will take the deposits of America West.

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