Feds shut down Atlanta 'bank of banks'

In what's reportedly the biggest bank failure in Georgia history, federal regulators have shut down Atlanta-based Silverton Bank N.A., appointing the Federal Deposit Insurance Corp. as receiver.

Silverton Bank had approximately $4.1 billion in assets and $3.3 billion in deposits, all of which the FDIC said are expected to be within its insurance limits. It was the 30th bank failure nationwide so far this year, and Georgia's sixth (see list of failed banks).

As a commercial "bank of banks" that provided correspondent banking services to 1,400 client banks in 44 states, Silverton Bank didn't take deposits from the public or make loans to consumers, the FDIC said.

The bank's failure will put a $1.3 billion dent in the FDIC's insurance fund. The creation of a new bridge bank, Silverton Bridge Bank N.A., means regulators expect no "meaningful impact on the bank's clients," the FDIC said in a press release.

But the Atlanta Business Chronicle, citing industry experts, reports that the failure of Silverton Bank "will ripple through the banking industry" with "catastrophic consequences" for banks across the Sun Belt. That's because Silverton's client banks are not only depositors, but investors who are owed money by the bank.

Silverton Bank grew rapidly during the housing boom, in part by selling customers pieces of larger loans, the paper said. The bank reported rising losses throughout 2008, and was censured by the Office of the Comptroller of Currency (OCC) in February and by the Federal Reserve Bank of Atlanta last month.

In a written agreement, Silverton Bank agreed not to pay dividends or interest on outstanding debt without the prior consent of the Federal Reserve, which may hurt client banks that are Silverton shareholders who had counted on that investment income, the paper reported at the time.

The OCC said it moved to shut down Silverton after finding the bank had "experienced substantial dissipation of assets and earnings due to unsafe and unsound practices," and incurred losses "that have depleted most of its capital" with no reasonable prospect that the bank could recapitalize without federal assistance.

Silverton Bank had offices in Alabama, Florida, North Carolina, Tennessee, Illinois, Maryland, Ohio and Washington, the OCC said.

The FDIC today also announced the closure of a small bank in New Jersey, Citizens Community Bank, with total assets of approximately $45.1 million and total deposits of $43.7 million. North Jersey Community Bank will assume all deposits, and Citizen Community Bank's lone office will reopen Monday as a branch office of North Jersey Community Bank.

According to the FDIC's most recent Quarterly Banking Profile, there were 25 bank failures and 292 mergers in 2008, including 12 failures and 78 mergers in the last three months of the year alone.

The last time the FDIC saw more bank failures was 2002, when 11 banks went under. During the downturn of the early 1990s, 291 FDIC insured banks failed from 1991 to 1993.

The nation's 8,305 insured banks and thrifts posted $32.1 billion in losses in the last three months of 2008 -- the industry's first quarterly loss since 1990 -- and set aside $69.4 billion for loan and lease losses, more than double the same period a year ago.

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