Regulators shut 7 banks in 5 states; 37 in 2010

Regulators have shut down seven banks in five states, bringing to 37 the number of bank failures in the U.S. so far this year.

The Federal Deposit Insurance Corp. on Friday took over the banks: First Lowndes Bank, in Fort Deposit, Ala.; Appalachian Community Bank in Ellijay, Ga.; Bank of Hiawassee, in Hiawassee, Ga.; and State Bank of Aurora, in Aurora, Minn.

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Earlier, the agency said it had shuttered Advanta Bank, based in Draper, Utah; American National Bank of Parma, Ohio; and Century Security Bank of Duluth, Ga.

The bank failures this year follow the 140 that succumbed in 2009 to mounting loan defaults and the recession.

The FDIC was unable to find a buyer for Advanta Bank, which had $1.6 billion in assets and $1.5 billion in deposits. The regulatory agency approved the payout of the bank’s insured deposits and it said checks to depositors for their insured funds will be mailed on Monday.

National Bank and Trust, based in Wilmington, Ohio, agreed to assume the assets and deposits of the one-branch American National Bank, which had $70.3 million in assets and $66.8 million in deposits.

In addition, the FDIC and National Bank and Trust agreed to share losses on $49.8 million of American National Bank’s loans and other assets.

Bank of Upson, based in Thomaston, Ga., agreed to assume the assets and deposits of Century Security Bank, which had $96.5 million in assets and $94 million in deposits. Bank of Upson will share losses on $81.5 million of Century Security’s loans and other assets.

The failure of Advanta Bank is expected to cost the federal deposit insurance fund $635.6 million. The cost of resolving American National Bank is estimated at $17.1 million; that of Century Security, $29.9 million.

The pace of bank seizures this year is likely to accelerate in coming months, regulators have said, as losses mount on loans made for commercial property and development.

The bank failures — the 140 last year was the highest annual tally since 1992, at the height of the savings and loan crisis — have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a $20.9 billion deficit as of Dec. 31.

Depositors’ money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. Apart from the fund, the FDIC has about $66 billion in cash and securities available in reserve to cover losses at failed banks.

Banks, meanwhile, have tightened their lending standards. U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5%, from 2008, the FDIC reported recently.

New Senate legislation was unveiled this week that is a blueprint for the biggest overhaul of financial regulations since the 1930s, giving the government unprecedented powers to split up large complex firms if they pose a threat to the nation’s financial system. It would also create an independent consumer watchdog.

The bill crafted by Sen. Banking Committee Chairman Christopher Dodd, D-Conn., would force big, complex financial firms to pay insurance premiums in advance for a $50 billion fund to cover possible failures in their ranks. The fees levied up front would give the FDIC an immediate source of funds to resolve big failed institutions, so that taxpayer money wouldn’t be used.

The costs of resolving smaller banks that fail would continue to be covered by the FDIC.

The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.

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