Large Texas bank shut down by federal regulators

[DrDoom]

I love how all these major banks keep going down over the weekend and there is very little or no discussion in the MSM. 77 banks so far this year have gone down with 56 since March 31. All this has drained the FDIC reserve fund dangerously low (13 billion against 220 billion in possible liabilities) and some believe they have tapped into their line of credit at the Treasury Dept without setting off alarm bells to the public. But everything is alright says Bernanke and the Administration.....

WASHINGTON (AP) - Guaranty Bank became the second-largest U.S. bank to fail this year after the Texas lender was shut down by regulators and most of its operations sold at a loss of billions of dollars for the U.S. government to a major Spanish bank.

The transaction approved by the Federal Deposit Insurance Corp. marked the first time a foreign bank has bought a failed U.S. bank.

The bank failure, the 10th largest in U.S. history, is expected to cost the deposit insurance fund an estimated $3 billion.

The FDIC seized Austin-based Guaranty Bank, with about $13 billion in assets and $12 billion in deposits, and on Friday sold all of its deposits and $12 billion of its assets to BBVA Compass, the U.S. division of Banco Bilbao Vizcaya Argentaria SA, Spain's second-largest bank. In addition, the FDIC agreed to share losses with BBVA on about $11 billion of Guaranty Bank's loans and other assets.

Guaranty Bank, with 162 branches in Texas and California, saw its investments in real estate lending and mortgage-backed securities bought from other banks sour and had been teetering near collapse for weeks. Its parent, Guaranty Financial Group Inc. (GFG), reaffirmed Monday in a regulatory filing that the company was critically short of capital and didn't believe it could stay in business.

In April, the federal Office of Thrift Supervision said the company had engaged in "unsafe and unsound" banking practices and ordered it to raise fresh capital, find a buyer or face a takeover by the government.

Guaranty's failure, along with those of three small banks in Georgia and Alabama Friday, brought to 81 the number of U.S. bank failures this year amid rising loan defaults spurred by tumbling home prices and spiking unemployment. That is the highest number in a year since 1992 at the height of the savings and loan crisis; it compares with 25 last year and three in 2007.

Last week the FDIC seized Colonial Bank, a big lender in real estate development, and sold its $20 billion in deposits, 346 branches in five states and about $22 billion of its assets to BB&T Corp. It was the biggest bank failure so far this year, and the sixth-largest in U.S. history.

My Way News - Large Texas bank shut down by federal regulators

[Litter Box]

The FDIC does it on weekends so they do not have shut down the operations of the bank. If the news got out early it could cause a run on the bank. On Monday the bank will open up under the control of another bank or under the control of the FDIC. This was on 60 minutes a couple of month ago.

[DrDoom]

The FDIC does it on weekends so they do not have shut down the operations of the bank. If the news got out early it could cause a run on the bank. On Monday the bank will open up under the control of another bank or under the control of the FDIC. This was on 60 minutes a couple of month ago.

So I guess everything is alright then.....notwithstanding the fact that there are roughly 8400 American banks that set aside a small portion of their profits to aggregrately insure bank depositors should their local bank fail. The FDIC's 8400 banks will likely be assessed special fees to shore up the FDIC's dwindling reserves. This puts increasing pressure on these banks who are faced with anticipated losses in real estate loans etc etc to begin with as the economy deteriorates further. That means the "profits" they do make after their writeoffs for non-performing loans (commercial or residential) has to be increasingly directed to the FDIC to shore up its quickly vanishing reserve account. Thus again you have the FDIC fighting a losing battle and again the FDIC's 13 billion against 220 billion in liabilities against problem banks it has identified which puts the entire FDIC in jeopardy and is akin to another institution requiring bailout and a massive one at that since the FDIC going down would really create a bank run you couldn't obfuscate on the weekend. Did 60 minutes address any of this?

[Litter Box]

So I guess everything is alright then.....notwithstanding the fact that there are roughly 8400 American banks that set aside a small portion of their profits to aggregrately insure bank depositors should their local bank fail. The FDIC's 8400 banks will likely be assessed special fees to shore up the FDIC's dwindling reserves. This puts increasing pressure on these banks who are faced with anticipated losses in real estate loans etc etc to begin with as the economy deteriorates further. That means the "profits" they do make after their writeoffs for non-performing loans (commercial or residential) has to be increasingly directed to the FDIC to shore up its quickly vanishing reserve account. Thus again you have the FDIC fighting a losing battle and again the FDIC's 13 billion against 220 billion in liabilities against problem banks it has identified which puts the entire FDIC in jeopardy and is akin to another institution requiring bailout and a massive one at that since the FDIC going down would really create a bank run you couldn't obfuscate on the weekend. Did 60 minutes address any of this?

Perhaps the FDIC over the last decade did not perform it's job and during examinations did not check out the quality of loans. I read that AIG only had one federal examiner. I've said this over and over, a bad loan is a bad loan. If the the loans are not underwritten properly then they probably will fail in a recession. If the agency in charge of oversite did not do it's job for what ever reason it is also responsible.

Here is the link to the story of AIG == http://www.rollingstone.com/politics...e_big_takeover

[DrDoom]

Perhaps the FDIC over the last decade did not perform it's job and during examinations did not check out the quality of loans. I read that AIG only had one federal examiner. I've said this over and over, a bad loan is a bad loan. If the the loans are not underwritten properly then they probably will fail in a recession. If the agency in charge of oversite did not do it's job for what ever reason it is also responsible.

Here is the link to the story of AIG == The Big Takeover : Rolling Stone

The intent of my post is not to assign blame but to point out a situation that has grave ramifications/consequences if it continues to be hidden from the public. The bad loans that were originated was a symptom of the disease of structured finance. That is a whole other thread we can argue about. The problem here is that the FDIC chief is trying to get bankers to begin loaning money again. But to do so bankers must begin to assess the worth of real estate at more realistic values. This, however, would reveal the real value of their asset package and the banks would be shown to be insolvent. Moreover, if banks begin to loan money under their fractional reserve banking scheme (banks loan out 10-50 fold more money than they have in reserve), then massive inflation will likely result. This would not only result in Americans bearing the brunt of higher cost of goods and services, but it could trigger Asian banks, seeing their savings devalued, to sell off their stash of U.S. Treasury bonds which they are buying much less of these days. American as a debtor nation depends on billions of dollars every day, loaned from Asian banks, to stay afloat financially.

Bair of the FDIC is aghast apparently at American bankers shifting away from traditional sources of revenue backed by collateral to risky investments. Bair wants to charge banks additional fees tied to risks when their business expands beyond traditional lending, such as stock trading. This idea hasn't advanced in Congressional committees yet because bank lobbyists such as Geithner and Summers don't want to push their buddies to pay to play. American bankers are walking a tight rope with their depositors' money.

In short..again all is not well and it matters little who's at fault right now (blame game) since we could face the mother of all bank runs if people knew that the FDIC is essentially broke or soon to be even if they can tap into the US Treasury for emergency funds since the US treasury itself is broke and requires foreign creditors to keep it afloat as I noted above....

[Litter Box]

The intent of my post is not to assign blame but to point out a situation that has grave ramifications/consequences if it continues to be hidden from the public. The bad loans that were originated was a symptom of the disease of structured finance. That is a whole other thread we can argue about. The problem here is that the FDIC chief is trying to get bankers to begin loaning money again. But to do so bankers must begin to assess the worth of real estate at more realistic values. This, however, would reveal the real value of their asset package and the banks would be shown to be insolvent. Moreover, if banks begin to loan money under their fractional reserve banking scheme (banks loan out 10-50 fold more money than they have in reserve), then massive inflation will likely result. This would not only result in Americans bearing the brunt of higher cost of goods and services, but it could trigger Asian banks, seeing their savings devalued, to sell off their stash of U.S. Treasury bonds which they are buying much less of these days. American as a debtor nation depends on billions of dollars every day, loaned from Asian banks, to stay afloat financially.

Bair of the FDIC is aghast apparently at American bankers shifting away from traditional sources of revenue backed by collateral to risky investments. Bair wants to charge banks additional fees tied to risks when their business expands beyond traditional lending, such as stock trading. This idea hasn't advanced in Congressional committees yet because bank lobbyists such as Geithner and Summers don't want to push their buddies to pay to play. American bankers are walking a tight rope with their depositors' money.

In short..again all is not well and it matters little who's at fault right now (blame game) since we could face the mother of all bank runs if people knew that the FDIC is essentially broke or soon to be even if they can tap into the US Treasury for emergency funds since the US treasury itself is broke and requires foreign creditors to keep it afloat as I noted above....

A lot of the problems today are probably just more repercussions from bad loans made during the last decade with the recession hurting what otherwise would have been acceptable loans. Lending made during this decade was made with unrealistic optimism and crushed with reality. The loan portfolios should have been analyzed and scheduled items watched. Reserves should be set aside for these scheduled items and updated each month. If done properly this should give ample warning of loan failures and sufficient reserves should be put in place. You're saying that the banks are still making loans and investments without proper documentation and oversight.

I would think that there are still enough regulations on the books to bring rogue banks in line and if the banks cannot comply then a takeover should occur. This was and is a widespread problem and failures will continue until the recession ends. This is first time in recent history where we have had large drops in the value of real estate and this is still going on in parts of the country and could lead to more failures for the lenders in large developments.

This is not a static problem and the people trying to solve it must be flexible and some of the press may be warranted but over blown.

[OldCityTans]

I've read several finacial blogs that predict this collapse & run on the banks, then the depletion of the FDIC, will happen within the next few weeks. *doom & gloom!*

[DrDoom]

I've read several finacial blogs that predict this collapse & run on the banks

oh like this....

Economics blogger Michael Shedlock, aka “Mish,” is asking whether the FDIC has any money left in its fund after the $2.8 billion rescue of Colonial BancGroup in Alabama. It was the biggest failure since Washington Mutual last year and the sixth biggest ever. Competitor BB&T is now feasting on the Colonial carcass.

The FDIC says it has $13 billion in its fund and has set aside another $25 billion to cover individual depositors up to $250,000 per account. But Mish, a registered investment advisor at Sitka Pacific Management, isn’t buying it:

Tonight, inquiring minds are asking “Is There Any Money Left In The Fund?”


Nancy Miller - The New Wall St. – Has the FDIC run out of money? The graphic speaks volumes - True/Slant

[DrDoom]

Perfect..more bank consolidation...more too big to fail in the future...big fish eat little fish. It's all good though...

A prominent banking analyst said Sunday that 150 to 200 more U.S. banks will fail in the current banking crisis, and the industry's payments to keep the Federal Deposit Insurance Corp afloat could eat up 25 percent of pretax income in 2010.

Richard Bove of Rochdale Securities said this will likely force the FDIC, which insures deposits, to turn increasingly to non-U.S. banks and private equity funds to shore up the banking system.

"The difficulty at the moment is finding enough healthy banks to buy the failing banks," Bove wrote.

The FDIC is expected on August 26 to vote on relaxed guidelines for private equity firms to invest in failed banks, after critics said previously proposed rules were too harsh and would actually dissuade firms from making investments.

US May See 150-200 More Bank Failures: Bove - Financials * US * News * Story - CNBC.com

[DrDoom]

As the Wall Street Journal reports this morning, in what are called a "loss-share" agreements, buyers of failed banks are getting billions of dollars in government guarantees to snatch up the bank's bad assets. To entice buyers, the Federal Deposit Insurance Corporation is offering to cover around 80 percent of the losses associated with buying a bank. The result, the WSJ points out, is a massive subsidy to the private equity industry, and a huge risk to the American taxpayer.

"Loss-Share": FDIC Offers Billions In Guarantees For Buyers Of Failed Banks