Regulators shut Bradford Bank in Maryland
WASHINGTON -- Regulators on Friday shut down Bradford Bank, a small bank in Maryland, marking the 82nd U.S. bank failure this year amid the soured economy and rising loan defaults.
The Federal Deposit Insurance Corp. took over Baltimore-based Bradford Bank, with about $452 million in assets and $383 million in deposits as of June 30. Manufacturers and Traders Trust Co., based in Buffalo, N.Y., has agreed to assume the deposits and assets of the failed bank. The nine branches of Bradford Bank will reopen Saturday as offices of M&T.
In addition, the FDIC and M&T agreed to share losses on about $338 million of Bradford Bank's loans and other assets, the FDIC said. The failure of Bradford Bank is expected to cost the deposit insurance fund an estimated $97 million.
Bradford Bank is a thrift; it began operating in 1903 as the Bradford Loan and Savings Association.
Its primary regulator, the federal Office of Thrift Supervision, said Bradford had critically low levels of capital and was in "an unsafe and unsound condition to conduct business."
Hundreds more banks are expected to fail in the next few years largely because of souring loans for commercial real estate. The number of banks on the FDIC's confidential "problem list" jumped to 416 at the end of June from 305 in the first quarter. That's the highest number since June 1994, during the savings-and-loan crisis.
Last week, Guaranty Bank became the second-largest U.S. bank to fail this year after the big Texas lender was shut down and most of its operations sold at a loss of billions of dollars for the government to a major Spanish bank. The failure, the 10th-largest in U.S. history, is expected to cost the insurance fund an estimated $3 billion.
The sale of most of Austin-based Guaranty's operations to the U.S. division of Banco Bilbao Vizcaya Argentaria SA, Spain's No. 2 bank, market the first time a foreign bank has bought a failed American bank during the current financial crisis.
The insurance fund has been so depleted by the epidemic of collapsing financial institutions that some analysts have warned it could sink into the red by the end of this year. The fund fell 20 percent to $10.4 billion at the end of June, the FDIC reported Thursday.
That's its lowest point since 1992, at the height of the S&L crisis. The agency estimates bank failures will cost the fund around $70 billion through 2013.
U.S. banks overall lost $3.7 billion in the second quarter, compared with a profit of $7.6 billion in January-March, according to the FDIC. Surging levels of soured loans at banks dragged down profits in the April-June period.
FDIC Chairman Sheila Bair said Thursday there were no immediate plans to borrow money from the government to replenish the insurance fund by tapping the agency's $500 billion credit line with the Treasury. The FDIC may, however, impose an additional fee on U.S. banks this year to bolster the fund, atop the estimated $5.6 billion from a new emergency premium that took effect June 30.
The FDIC is fully backed by the government, which means depositors' money is guaranteed up to $250,000 per account. And the agency still has billions in loss reserves -- including $21.6 billion in cash -- apart from the insurance fund.
This week, the FDIC opened the door wider for private investors to buy failed financial institutions. The FDIC's board voted Wednesday to reduce the cash that private equity funds must maintain in banks they acquire.
Private equity funds have been criticized as excessive risk-takers. But with fewer healthy banks willing to buy ailing institutions, the banking crisis has softened the FDIC's resistance to private buyers.