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Failures at banks often hit on Friday
Heavy real-estate lending has stung local institutions
Russ Wiles
The Arizona Republic
Jun. 20, 2008 12:00 AM
In banking circles, Fridays are becoming the day of the week to really pay attention.
That's the day regulators increasingly are choosing to announce bank failures - and failures are on the rise this year.
No banks in Arizona have failed in more than a decade, but concerns are growing that one or more entities might go under given the heavy concentration of real-estate lending by many local institutions. advertisement
One worrisome sign: Slightly more than half the banks based in Arizona lost money in the first quarter, led by a $131 million loss for First National Bank of Arizona and $14 million in red ink for Meridian Bank. Both institutions also reported 10 percent or more of their loans weren't performing as of the end of the quarter.
When the Federal Deposit Insurance Corp. announces a bank failure on Friday, often late in the day, it does so with an eye on preventing a run on deposits. The timing provides a weekend for people to calm down.
The extra time also allows for a more orderly changing of the guard since regulators work hard to line up a suitor bank to take over accounts at the failed institution before making an announcement.
"They want to have the least amount of disruption," said Harry Papp, a money manager at L. Roy Papp & Associates in Phoenix. "It gives the receiving bank more time to get prepared for all the phone calls they'll get on Monday morning."
Of the past 14 bank failures announced by the FDIC, 12 came on Fridays and one on a Saturday. Regulators did most of the hard work - examining bank records, finding a suitor, revoking the bank's charter and so on - in the preceding days and weeks, as secretly as possible to avoid sparking a run.
"From the government's standpoint, no prior notice is given that a bank is scheduled to be closed," said David Barr, an FDIC spokesman, in an interview with bankrate.com. The FDIC could not be reached for comment Thursday.
When regulators shutter a bank on a Friday, depositors typically still have access to their funds over the weekend by writing checks or using debit or ATM cards.
Usually, but not always, their money will be protected by federal deposit insurance administered by the FDIC. The basic rule is that each depositor receives $100,000 in protection per bank. Individual retirement accounts are protected up to $250,000.
But insurance applies only to deposits, not securities or insurance products such as stocks, bonds, mutual funds or annuities - even when bought at or through a bank.
Then again, uninsured amounts exceeding $100,000 aren't necessarily a total loss. The acquiring institution may honor them. If it doesn't, uninsured depositors may share in the liquidation of the failed bank's assets.
Heavy real-estate lending has stung local institutions
Russ Wiles
The Arizona Republic
Jun. 20, 2008 12:00 AM
In banking circles, Fridays are becoming the day of the week to really pay attention.
That's the day regulators increasingly are choosing to announce bank failures - and failures are on the rise this year.
No banks in Arizona have failed in more than a decade, but concerns are growing that one or more entities might go under given the heavy concentration of real-estate lending by many local institutions. advertisement
One worrisome sign: Slightly more than half the banks based in Arizona lost money in the first quarter, led by a $131 million loss for First National Bank of Arizona and $14 million in red ink for Meridian Bank. Both institutions also reported 10 percent or more of their loans weren't performing as of the end of the quarter.
When the Federal Deposit Insurance Corp. announces a bank failure on Friday, often late in the day, it does so with an eye on preventing a run on deposits. The timing provides a weekend for people to calm down.
The extra time also allows for a more orderly changing of the guard since regulators work hard to line up a suitor bank to take over accounts at the failed institution before making an announcement.
"They want to have the least amount of disruption," said Harry Papp, a money manager at L. Roy Papp & Associates in Phoenix. "It gives the receiving bank more time to get prepared for all the phone calls they'll get on Monday morning."
Of the past 14 bank failures announced by the FDIC, 12 came on Fridays and one on a Saturday. Regulators did most of the hard work - examining bank records, finding a suitor, revoking the bank's charter and so on - in the preceding days and weeks, as secretly as possible to avoid sparking a run.
"From the government's standpoint, no prior notice is given that a bank is scheduled to be closed," said David Barr, an FDIC spokesman, in an interview with bankrate.com. The FDIC could not be reached for comment Thursday.
When regulators shutter a bank on a Friday, depositors typically still have access to their funds over the weekend by writing checks or using debit or ATM cards.
Usually, but not always, their money will be protected by federal deposit insurance administered by the FDIC. The basic rule is that each depositor receives $100,000 in protection per bank. Individual retirement accounts are protected up to $250,000.
But insurance applies only to deposits, not securities or insurance products such as stocks, bonds, mutual funds or annuities - even when bought at or through a bank.
Then again, uninsured amounts exceeding $100,000 aren't necessarily a total loss. The acquiring institution may honor them. If it doesn't, uninsured depositors may share in the liquidation of the failed bank's assets.
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