Colonial became the largest US bank to fail this year after it was declared bankrupt and had the bulk of its assets taken over by rival BB&T, the government banking insurer said Friday. All of Alabama-based Colonial's 346 branches will reopen Saturday "and operate as branches of BB&T," the Federal Deposit Insurance Corporation (FDIC) said in a statement.
"Deposits will continue to be insured by the FDIC," the agency said. After suffering no bank failures at all in 2005 and 2006, the US banking system saw three banks going under in 2007, followed by 25 in 2008. With its bankruptcy Friday, Colonial became the 74th FDIC-insured institution to fail in the United States so far in 2009 - highlighting the extreme stress that the global financial crisis has placed on US banks.
As of the end of June, Colonial Bank's total assets were 25 billion dollars and its total deposits were some 20 billion dollars. While BB&T will obtain around 22 billion dollars in assets, the FDIC said it would keep the rest "for later disposition."
FDIC Chairman Sheila Bair assured that while the last 18 months had put unprecedented strain on the financial system, the agency was performing as intended. "Today, after protecting almost 300 billion dollars in deposits since the current financial crisis began, the FDIC's guarantee is as certain as ever," she said.
"The FDIC continues to stand by the nation's insured deposits with the full faith and credit of the US government. No depositor has ever lost a penny of their insured deposits." The FDIC said it estimated the transaction would cost the government's Deposit Insurance Fund 2.8 billion dollars.
But the FDIC and BB&T also entered into a loss-sharing agreement on approximately 15 billion dollars of Colonial Bank's assets; which the federal government said the arrangement would minimise the cost to taxpayers. Federal regulators have offered similar arrangements in a bid to entice prospective buyers in several other recent bank failure deals.
Colonial operated 346 branches in Alabama, Florida, Georgia, Nevada and Texas. The Obama administration is seeking banking regulatory reforms that amount to the most sweeping overhaul of financial rules since the 1930s. "We did not choose how this crisis began. But we do have a choice in the legacy this crisis leaves behind," Obama said as he announced the reforms on in June.
"My administration is proposing a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression." The reforms, which must be approved by Congress, will inject the government deeper into the finance sector in a bid to tame the recklessness that saw a mortgage meltdown tip the world into deep economic crisis. The FDIC currently guarantees deposits in banks up to 250,000 dollars.
Comments
Comments are closed.