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The Mortgage Graveyard
Failed, closed and a c q u i r e d mortgage-related entities.



Inside a Bank Failure

Inside look at failure of Bank of Clark County

April 10, 2009

By MortgageDaily.com staff


The process of seizing a bank covertly begins for regulators well before the actual closing. A look inside the recent failure of one small bank provides a glimpse into a highly efficient process.

Last year, 25 institutions were closed by federal or state regulators and handed over to the Federal Deposit Insurance Corporation -- which insured the banks' depositors.

So far this year, 21 federally-insured banks have failed.

The volume of bank failures has soared since 2007 -- when there were just three.

In order to handle the growing number of failures, the FDIC -- which takes possession of failed banks as receiver -- is hiring 600 new agents to execute the process of seizing a bank in a "SWAT team" like way, according to Scenes From a Recession from This American Life. Bank closings are done covertly to avoid a run on deposits and prevent malicious acts by employees or executives of the banks being seized.

The second bank failure of 2009 was Bank of Clark County in Vancouver, Wash., on Jan. 16.

The 91-employee institution had inadequate capital and liquidity, according to the Washington Department of Financial Institutions -- which shut it down. A combination of loan portfolio deterioration and economic instability pushed the bank into insolvency.

Mortgages accounted for $340 million of the Bank of Clark County's $367 million in assets.

Umpqua Bank of Roseburg, Ore., assumed around $249 million of the failed bank's deposits. The FDIC's announcement of the seizure did not indicate that Umpqua acquired any assets.

The failure was expected to cost the FDIC's Deposit Insurance Fund between $120 million and $145 million.

The FDIC had been planning the seizure long before the action, the reporter for This American Life said. A total of 80 agents checked in under fake names at a Vancouver hotel on the Thursday evening before the bank's seizure. Umpqua's chief executive officer was called at 9 p.m. that evening and told that his bank had won the bid for the failed bank's assets and not to tell anyone of the failure.

At noon Friday, another Umpqua executive met with the FDIC at the hotel.

Employees -- who had been told by the failed bank's CEO Mike Worthy that the bank was struggling but would likely be acquired by another bank -- were stunned when regulators stormed the bank on Friday at 5:05 p.m., the story said. A little after 6 p.m., Worthy stood before the dazed employees, advised them of the failure and said that the federal government would be taking over the company.

Many employees were shareholders and faced a total loss on their investments, according to the report.

A state regulator then declared that the state was owner of the bank, at which point it was announced that all assets would be transferred to the FDIC. The FDIC followed with a statement warning that the remaining agents would be entering the bank. Umpqua's CEO was then introduced.

The FDIC proceeded to tell employees that they had become its temporary employees and would need to work until late that night and through the weekend. Employees would be paid for their time.

One employee started to tell the reporter that his daughter's seventh birthday celebration was that night, but he was unable to finish his statement.

Various executives noted the FDIC's expert handling of the entire process. Each asset was individually transferred to the new bank before it re-opened under the new owner the following Monday.

An assistant loan officer who was interviewed, Lisa Stapelton, noted that many of the FDIC's people had themselves been employees of failed banks.

Related:
2 Banks First to Fail in '09
Two banks with nearly $1 billion in assets between them were the first two government-insured casualties of the new year.

Corporate Mortgage News
M e r g e r s, a c q u i s i t i o n s and private and public offerings. Other corporate activity including executive appointments, bankruptcies name changes.


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