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Colonial Dead

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The Alabama State Banking Department has finally put Colonial Bank out of its misery. The huge failure — the largest this year — prompted words of reassurance from the chairman of the country’s bank deposit insurance fund.

Alabama seized control of the Montgomery, Ala.-based institution at 5 p.m., shut it down and appointed the Federal Deposit Insurance Corporation receiver. Impaired capital was among the reasons cited for the failure.

Colonial and parent Colonial BancGroup Inc. have been on a downward spiral since a $300 million investment by a group of investors led by Taylor, Bean and Whitaker Mortgage Corp. collapsed last month and it warned about its ability to continue as a going concern.

Since then, agents from the Special Inspector General for the Troubled Asset Relief Program raided the bank’s warehouse lending division, the U.S. Department of Justice launched a criminal investigation into accounting irregularities at the unit and Bank of America obtained a $1 billion temporary restraining order against the company.

Today’s announcement indicated Branch Banking and Trust assumed all of Colonial’s $20 billion in deposits. In addition, BB&T will acquire $22 billion of Colonial’s $25 billion in assets as of June 30. Colonial held $5.3 billion in residential mortgages, $4.9 billion in commercial mortgages and $4.6 billion in construction-and-land-development loans as of March 31 — though the company has acknowledged accounting irregularities.

With a $15 billion loss-sharing agreement in place, the FDIC expects the failure to deplete its Deposit Insurance Fund by $2.8 billion.

Colonial was the second federally insured bank to fail today and the 74th failure this year. It was founded in 1917 and employed more than 4,800 people as of March 31.

In an unusual move, FDIC Chairman Sheila C. Bair commented on the failure in the FDIC’s news release. She reassured the public that the agency’s “guarantee is as certain as ever.”

“The past 18 months have been a very trying period in the financial services arena,” Bair stated. “Losses from today’s failures are lower than had been projected.”

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