Text: So with that out of the way, looks like it's about as clean a failure as you can get. Not sure if this is a "first of many domino's" scenario, but sure doesn't look like it. 130 million is...
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Heartland Tri-State Bank of Elkhart, Kansas, failed on Friday, with the Federal Deposit Insurance Corporation taking control.
The FDIC agreed to assume all the deposits of Heartland Tri-State Bank to protect customers, entering a purchase and assumption agreement with Dream First Bank of Syracuse, Kansas.
That means the four branches of Heartland Tri-State Bank will reopen as branches of Dream First Bank on Monday.
The recent closures of First Republic, Silicon Valley Bank and Signature Bank this year have shaken up the banking industry, prompting lawmakers to introduce new legislation to protect customer deposits and stabilize the financial system.
Heartland Tri-State Bank is the first bank to fall since First Republic, the nation’s second-largest bank failure ever, in early May.
The FDIC said bank customers can access their money by writing checks or using ATM or debit cards. They also won’t have to change their banking, as they will automatically become customers of Dream First Bank.
Heartland Tri-State Bank had approximately $139 million in total assets and $130 million in total deposits, the FDIC said. Dream First Bank also agreed to buy “essentially all” of Heartland Tri-State’s failed assets.
Loan customers should also be largely unaffected, the FDIC said, because the FDIC and Dream First Bank are entering an agreement to share in the losses and potential recoveries on the loans.
“You should continue to make payments, including escrow payments, as usual; the terms of your loan will not change,” the FDIC said.
So with that out of the way, looks like it's about as clean a failure as you can get. Not sure if this is a "first of many domino's" scenario, but sure doesn't look like it. 130 million is peanuts compared to something like First Republic, and the fact that Dream First is willing to gobble them up ASAP doesn't point to some hellishly toxic situation.
I'm still very impressed they managed to stem the bleeding on the 3 major failures, but I have to admit i'm also wondering if they just somehow punted it down the road and the real pain is yet to come.
This is actually pretty standard for how the FDIC handles bank failures. FDIC steps in with receivership and manages the bank until they can sell the bank to someone else. When they sell the...
This is actually pretty standard for how the FDIC handles bank failures. FDIC steps in with receivership and manages the bank until they can sell the bank to someone else. When they sell the failed bank to another bank, they agree to cover a portion of the loss for any bad loan the failed bank may have had on the books.
Ultimately this is how the FDIC protects deposits. It saves the FDIC money and allows them to better insure deposits. The FDIC doesn't actually pay depositors their deposits when a bank fails (unless in the case where they can't find a buyer in which they'll dissolve the failed bank and give you back up to the insured limit of $250k).
This is also why some banks are "too-big-to-fail". If they were to fail, there'd be no way the FDIC could: a.) cover all the bad loans after selling the failed bank, or b.) cover all the deposits of the failed bank. If FDIC tried to cover a "too-big-to-fail" bank, than FDIC would go bankrupt and no deposits in the country are insured. This is why taxpayers had to bail out the banks in the GFC.
Also, don't forget that FDIC is primarily funded by banks and not tax-payers. Every bank in the country makes premium payments to the FDIC for coverage of their depositors (to the limit). When FDIC said they'd lift the coverage limit on the deposits for SVB this year, it wasn't taxpayers backing that - it was the FDIC because they had enough money from all the premiums they've been collecting from the industry to safely say they could do it.
Last thing - this 60 minutes segment from the GFC is worthwhile watching if you're interested.
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So with that out of the way, looks like it's about as clean a failure as you can get. Not sure if this is a "first of many domino's" scenario, but sure doesn't look like it. 130 million is peanuts compared to something like First Republic, and the fact that Dream First is willing to gobble them up ASAP doesn't point to some hellishly toxic situation.
I'm still very impressed they managed to stem the bleeding on the 3 major failures, but I have to admit i'm also wondering if they just somehow punted it down the road and the real pain is yet to come.
I know it's a failure but this seems more like an acquisition than a failure. One bank took over another bank.
This is actually pretty standard for how the FDIC handles bank failures. FDIC steps in with receivership and manages the bank until they can sell the bank to someone else. When they sell the failed bank to another bank, they agree to cover a portion of the loss for any bad loan the failed bank may have had on the books.
Ultimately this is how the FDIC protects deposits. It saves the FDIC money and allows them to better insure deposits. The FDIC doesn't actually pay depositors their deposits when a bank fails (unless in the case where they can't find a buyer in which they'll dissolve the failed bank and give you back up to the insured limit of $250k).
This is also why some banks are "too-big-to-fail". If they were to fail, there'd be no way the FDIC could: a.) cover all the bad loans after selling the failed bank, or b.) cover all the deposits of the failed bank. If FDIC tried to cover a "too-big-to-fail" bank, than FDIC would go bankrupt and no deposits in the country are insured. This is why taxpayers had to bail out the banks in the GFC.
Also, don't forget that FDIC is primarily funded by banks and not tax-payers. Every bank in the country makes premium payments to the FDIC for coverage of their depositors (to the limit). When FDIC said they'd lift the coverage limit on the deposits for SVB this year, it wasn't taxpayers backing that - it was the FDIC because they had enough money from all the premiums they've been collecting from the industry to safely say they could do it.
Last thing - this 60 minutes segment from the GFC is worthwhile watching if you're interested.
Right, and likely for less than it would have cost them to acquire it the "normal" way, as the article mentions the FDIC "sharing" in the losses.
Wow this is the first time I've ever seen FDIC spelled out. Guess TIL what it stands for.