Number of Bank Failures Hits 22

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Number of U.S. Bank Failures This Year Hits 22
Saturday , November 22, 2008

WASHINGTON  —
Federal regulators on Friday shut down two big thrifts based in Southern
California, saying they fell victim to the acute distress in the housing market
in that state.

The failures of Downey Savings and Loan Association, based in Newport Beach, and
PFF Bank & Trust of Pomona brought the number of U.S. bank failures this year to
22.

The Federal Deposit Insurance Corp. was appointed receiver of the two thrifts.
U.S. Bank, based in Minneapolis, acquired all the deposits of both.
Downey, the 23rd-largest U.S. savings and loan, had assets of $12.8 billion and
deposits of $9.7 billion as of Sept. 30. PFF, the 38th-largest, had assets of
$3.7 billion and $2.4 billion in deposits.

Also Friday, Georgia regulators shut down The Community Bank, a small bank in
Loganville, Ga. The FDIC was made receiver of the bank, which had $681 million
in assets and $611.4 million in deposits as of Oct. 17. The FDIC said all the
bank's deposits and about $84.4 million of its assets will be acquired by Bank
of Essex, of Tappahannock, Va. Its four branches will reopen Monday as offices
of Bank of Essex.

The Office of Thrift Supervision, the federal regulator for the two California
thrifts, said they both suffered mounting losses since last year. Downey's
business focused on nontraditional, high-risk home mortgages such as
payment-option and adjustable-rate loans.

The Treasury Department agency recently boosted the minimum capital requirements
for the parent, Downey Financial Corp., as the company struggled with the
slumping mortgage market. Downey was hit hard by rising mortgage defaults,
especially in its option adjustable-rate mortgage holdings. Option ARMs allow
customers to choose a different payment option each month — including a payment
that is smaller than the interest due on the loan.

Option ARMs have been among the worst-performing loans during the downturn in
the real estate market.

PFF, established in 1892, had a large concentration of housing construction
loans hit hard by the deteriorating real estate market on the West Coast, the
thrift agency said.

"The closing of these two thrifts once again demonstrates the tremendous impact
of the housing market distress on the state of California," said John Reich,
director of the Office of Thrift Supervision, in a statement. This year, four of
the five failures of institutions regulated by the agency — and all the ones of
significant size — had major concentrations in housing finance business in
California, he said.

In July, another big savings and loan, IndyMac Bank based in Pasadena, Calif.,
failed and was seized by regulators with about $32 billion in assets.
The FDIC estimated that the resolution of Downey will cost the federal deposit
insurance fund about $1.4 billion, while that of PFF will cost an estimated $700
million.

Regular deposit accounts are now insured up to $250,000 as part of the financial
rescue law enacted in early October.

The 22 bank failures so far this year compare with three for all of 2007 and are
far more than in the previous five years combined. It's expected that many more
banks won't survive the next year of economic tumult. The pressures of tumbling
home prices, rising mortgage foreclosures and tighter credit have been battering
many banks, large and small, nationwide.

This year's failures also include Seattle-based thrift Washington Mutual Inc. in
late September, the biggest bank collapse in U.S. history. It had $307 billion
in assets.

The FDIC estimates that through 2013 there will be about $40 billion in losses
to the deposit insurance fund, including an $8.9 billion loss from the failure
of IndyMac Bank. The FDIC is raising insurance premiums paid by banks and
thrifts to replenish its fund, which now stands at around $45.2 billion, below
the minimum target level set by Congress and the lowest level since 2003.

On Friday, the FDIC formally approved a program to guarantee as much as $1.4
trillion in U.S. banks' debt for more than three years as part of the
government's financial rescue plan. Under the program, meant to thaw the freeze
in bank-to-bank lending, the FDIC will provide temporary insurance for loans
between banks — except for those for 30 days or less — guaranteeing the new debt
in the event of payment default by the borrowing bank.

The FDIC also will guarantee deposits in non-interest-bearing "transaction"
accounts by removing the current $250,000 insurance limit on them through the
end of next year. That could add as much as $500 billion to FDIC-backed
deposits.

Well over half of the roughly 8,500 federally insured banks and savings and
loans are expected to tap the FDIC's temporary guarantees.

Of the 8,500 federally insured banks and thrifts, the FDIC had 117 on its
internal list of troubled institutions as of June 30, a five-year high. The
agency doesn't disclose the banks' names.

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