Bank seizures belie news about improving economy

Today's news that U.S. regulators had seized nine Western banks is a sure sign that the world's largest economy is still in crisis, even while federal officials and traders on the New York Stock Exchange behave as if the nation's financial system has already recovered. The nine failed banks owned by FBOP Corp., an Illinois-based bank holding company, and their scores of branches were acquired by U.S. Bancorp of Minneapolis, which owns 770 U.S. Bank branches in Illinois, Arizona and California. The largest of the nine banks, California National Bank of Los Angeles, had 68 branches in Southern California. The nine bank seizures were the most in a single day since the financial crisis began, according to the Reuters international news service. "We're getting ready to turn everything over to U.S. Bank," said Roberta Valdez, a spokeswoman for the Federal Deposit Insurance Corp, which is helping to supervise the transfer. "[The banks] will continue to operate as normal in the interim." Today's takeovers bring to 115 the number of bank failures in 2009, the most since 1992, and more are yet to come, Reuters said, as depressed commercial real estate prices make billions of dollars in loans uncollectable. Small banks are expected to be the hardest hit because they are not as diversified as larger banks, Reuters said. Other banks expecting to report big losses this year include Zions Bancorp of Salt Lake City, Columbus, Georgia's Synovus Financial Corp of Columbus, Georgia, and Comerica Inc. of Dallas. U.S. Bancorp has been helping to pick up the slumping industry in the West by buying Downey Savings of Newport Beach and PFF Bank & Trust of Pomona last November and, in October, buying 20 branches from BB&T Corp. in Nevada.

Are U.S. regulators proposing covering bank failures with accounting tricks?

Could it possibly be true that regulators are proposing to use an accounting trick to replenish the beleaguered FDIC fund that protects bank deposits? That's what it seemed like Tuesday when the Federal Deposit Insurance Corp.'s five-member board voted to require banks to prepay $45 billion in quarterly fees but not require them to account for the money until later, according to the Reuters international news service. The proposal, released for a 30-day public comment period, is intended to help shore up the FDIC's bank failure fund, which is expected to pay out $100 billion through 2013. The fund is expected to be in the red later this year and remain in the red through 2012, Reuters said. Ninety-five banks have failed so far in 2009, compared with 25 last year and three in 2007. The prepayment will enable the banking industry to avoid another emergency assessment like the $5.6 billion fee levied on banks in May, Reuters said. "Everybody has bailout fatigue," said FDIC Chairwoman Sheila Bair, explaining that the prepayment would avoid forcing the agency to use its $500 billion line of credit with the U.S. Treasury. The proposal would require banks to prepay their regular assessments for all of 2010, 2011 and 2012 when they pay their regular assessments for the fourth quarter of 2009 on Dec. 30. Bair said her agency had plenty of money to protect depositors despite the negative balance in the fund. "We have tons of money to protect insured depositors," she said. "This is really about the mechanics of funding." Actually, it sounds some kind of game-playing, precisely the wrong signal to send to nervous depositors all over the country. If adopted, the proposal would be the first time the agency has ever asked banks to prepay regular fees, Reuters said.