How safe is your community bank?
After Platinum Community Bank in Rolling Meadows suddenly closed last weekend, many consumers may well wonder: "How safe is my neighborhood bank?"
At this point in an unprecedented recession, experts believe that no bank, including small community banks, is out of the woods. Many believe that industrial and commercial loans could be the next crisis to hit, forcing more banks to fail in the next three years.
"All banks are still vulnerable," said David Klein, senior vice president/financial consultant with RBC Wealth Management in Vernon Hills.
RBC estimates that about 1,000 banks are expected to fail through 2012. Many also will be on federal government "watch lists," when they reach a troubling level on reserves, percentage of loans outstanding and other issues.
Platinum was the 88th bank nationwide to fail and the 15th in Illinois. Another, Inbank of South Suburban Oak Forest, also failed last weekend, pushing the nationwide number to 89 this year, according to the Federal Deposit Insurance Corp. in Washington, D.C.
The FDIC oversees 8,195 banks nationwide. About 93 percent of those are considered community banks because they have less than $1 billion in assets. Platinum had $345.6 million in assets and $305 million in deposits, said FDIC spokesman David Barr.
While the FDIC looks at the assets, some experts believe a true community bank is independently operated by local investors and caters just to the local community. For example, The Peoples' Bank of Arlington Heights is not a subsidiary of another major holding company and has local investors. It's independently operated and caters to area consumers.
On the other hand, Elk Grove Village Bank & Trust is owned by Advantage National Bank Group, which is owned by Lake Forest-based Wintrust Financial Corp. and has more than a dozen banks.
Platinum was owned by Ocala, Fla.,-based Taylor Bean & Whitaker Mortgage Corp., which had several offices nationwide, including in Oakbrook Terrace. It also recently filed bankruptcy. But the parent's financial woes doesn't always mean trouble for the subsidiary, said Bill Ruberry, a spokesman for the Office of Thrift Supervision, which decided to turn Platinum over to the FDIC.
"When a bank starts to get into trouble, the buck stops with our office. We decide if it should close and the FDIC handles the process after that," said Ruberry. "The deposits are safe and checks will be mailed to depositors."
Platinum also was a member of the Community Bankers Association of Illinois, based in Springfield. The failure of Platinum and others shows that the federal government favors larger banks with federal bailouts or so-called "shotgun marriages" that merge giants. Yet it's baffling why little has been done for smaller banks, said the association President Robert J. Wingert.
"There's definitely a double standard on who gets saved and who doesn't," Wingert said.
The FDIC said an assuming bank could not be found for Platinum.
The Rolling Meadows bank's assets paled in comparison to other giants that have been saved in the past year. Chase, Bank of America, Wells Fargo and Citigroup control nearly half of the country's banking deposits, Wingert said.
"There is just too much financial control by too few," Wingert said.
Regardless of size, protections are in place for customers of banks that fail, experts note, but they add consumers still need to go lightly when saving their dollars at any institution.
While the FDIC has extended its insurance protection for individual savers up to $250,000 through 2013, consumers still need to do some homework to ensure their accounts are covered under FDIC rules, they said.
Credit unions and banks with TARP funding are good bets right now, but things can always change, said Klein.
"Consumers need to ask a lot of questions. Like, what kind of reserves do the banks have to cover potential losses," Klein said.