MercoPress. South Atlantic News Agency

US regulators close seven banks; 52 so far in 2009

Six of the banks belonged to the same family

United States bank regulators closed seven institutions this week including six banks in Illinois controlled by one family and a small bank in Dallas, bringing the total number of US bank failures to 52 so far this year. (This compares with 25 in 2008 and 3 in 2007).

Founders Bank, of Worth, Illinois, was the largest of the financial institutions seized. The Federal Deposit Insurance Corp said Founders had 962.5 million US dollars in assets and approximately 848.9 million in deposits.

The PrivateBank and Trust Co of Chicago (PVTB.O) will assume all of the deposits of Founders Bank. The failure is expected to cost the FDIC deposit insurance fund an estimated 188.5 million.

The six failed Illinois banks were all controlled by one family and followed a similar business model, the FDIC said. The failures were related to losses that included soured investments in collateralized debt obligations.

According to a website of one of the Illinois banks, they were part of the Campbell Group of privately owned banks.

Also on Thursday, the FDIC ordered City Bank (CTBK.O), of Lynnwood, Washington, to cease and desist “operating with management whose policies and practices are detrimental” to the bank and “jeopardize” deposits.

The FDIC said the community bank operated with inadequate capital, inadequate loan valuation reserve and a large volume of poor quality loans.

Under the cease and desist agreement signed with the regulator and the state of Washington, City Bank must produce a plan to reduce its nonperforming loans and foreclosed real estate. The bank is also required to reduce the level of brokered deposits, City Bank said.

Regulators also closed Millennium State Bank of Texas in Dallas. Millennium had total assets of approximately 118 million and total deposits of 115 million, the FDIC said. State Bank of Texas will assume all of the deposits of Millennium. The failure of Millennium will cost the FDIC an estimated $47 million.

The agency has a running tally of problem banks that its examiners closely monitor. At the end of the first quarter, 305 unidentified financial institutions were on that list.