June 7, 2013

15th and 16th Bank Seizures of 2013; FDIC Invokes Rarely-Used Powers

The FDIC announced today that it took over two depository institutions: Mountain National Bank in Sevierville, Tennessee (near Gatlinburg and Pigeon Forge) and 1st Commerce Bank of North Las Vegas, Nevada (yet another failed subsidiary of Capitol Bancorp, Ltd. of Lansing, Michigan).

Photo credit: kenyee / Foter.com / CC BY-NC

The assets and liabilities of Mountain National Bank were transferred to First Tennessee Bank, at an estimated cost to the Deposit Insurance Fund of  $33.5 million.  The deposits and all assets of 1st Commerce Bank were taken by Plaza Bank of Irvine, California.  As of the end of the first quarter, 1st Commerce Bank had approximately $20.2 million in assets and $19.6 million in deposits. The FDIC estimates that cost to the Deposit Insurance Fund from 1st Commerce's failure will be $9.4 million.

Ordinarily, faltering financial institutions are seized by their chartering authority (such as a state banking agency or the Office of the Comptroller of the Currency), which then transfers the assets and liabilities to the FDIC as Receiver.  In the case of 1st Commerce Bank, the FDIC exercised its self-appointment powers granted by Congress through the FDIC Improvement Act of 1991. The FDIC has invoked the power only four times (including this instance).

In this case, the Nevada Financial Institutions Division's attempt to shutter the bank had been stalled by a temporary restraining order obtained by the bank in Clark County District Court in Nevada that had been in place since May 10, 2013.

Congress had conferred upon the FDIC the power to seize an insured depository institution even without the consent of the chartering authority out of fear that the state regulators might be slow to act when the FDIC needed to respond quickly to protect the Deposit Insurance Fund.  In this case, the state regulator's delay was directly attributable to a state court order.


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