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Two Banks In The U.S. Collapsed Due To Default

Financial authorities in Washington spent last week securing a rescue deal for two insolvent mortgage lenders in Nevada and California amid the latest signs that America's banking crisis is deepening.

The collapse of the two banks - which had combined assets of about $3.6 billion - came as a senior financial regulator told us that there was no end in sight for the crisis gripping the banking industry.

On Friday, Washington announced that it had forced the closure of First National Bank of Nevada and First Heritage Bank in California after they had found the first lender to have engaged in unsafe and unsound lending practices that had depleted its capital, and the second to be generally undercapitalised.

The closure of the banks comes within two weeks of the collapse of IndyMac, a big Californian mortgage lender, and raises new concerns that many more banks may be at serious risk of failure as America's financial crisis worsens.

Wall Street has been monitoring nervously the problem-list of banks that are under close scrutiny by the Federal Deposit Insurance Corporation (FDIC), the Washington agency that insures banking deposits. That list has grown to include 90 banks over the first quarter of this year, compared with 76 in the last quarter of 2007.

A division of the US Treasury took over the two banks last week and sold the bulk of their businesses on to Mutual of Omaha Bank. However, while the Omaha Bank acquired all the deposits from both banks, the FDIC - effectively Washington's receiver - has been forced to pick up the remaining $860 million of troubled assets.

First National had total assets of $3.4 billion and $3 billion in deposits, while First Heritage had assets of $254 million and $233 million in deposits. Under the terms of the deal with the Mutual of Omaha, customers from both banks will automatically become clients of the new owner today, with no risk of loss of savings or banking facilities.

Customers of the two bust banks were also able to withdraw cash from ATMs at the weekend and to write cheques. There were no scenes of panic outside any of the 28 branches of either bank over the weekend, unlike the queues of customers who lined up outside IndyMac offices a fortnight ago. Both banks operated in states that have borne the brunt of the American housing slump.

The failure to raise capital led to the collapse of Silicon Valley Bank

Largest Banks in the U.S. by Assets (2023)

Source: TimesOnline
Date: 29.07.2008 [179]
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