Two banks closed by regulators in Illinois, Nevada

Glenwood, Nevada, February 28: State regulators have shut two small banks in Illinois and Nevada in the wake of deepening financial crisis engulfing financial institutions. This takes the number of failures of federally insured institutions this year to 16.

The announcement of the closure of two banks this Friday marks the seventh consecutive week of bank failures this year.

Glenwood based Heritage Community Bank, with assets of $232.9 million, was shut down by regulators of Illinois. The Federal Deposit Insurance Corp. (FDIC) was appointed the receiver.

MB Financial Bank of Chicago agreed to assume all the Heritage’s deposits. Four branches of Heritage Bank will reopen as branches of MB Financial on Saturday.

Nevada regulators shut Security Savings Bank in Henderson, Nevada and all the deposits were sold to Bank of Nevada in Las Vegas by the FDIC. The bank has deposits worth $175.2 million and assets worth $238.3 million.

The collapse of Security Savings Bank will cost the FDIC $59.1 million. The Bank of Nevada in Las Vegas will assume its deposits. The bank’s two branches will reopen Monday as branches of Bank of Nevada.

According to the FDIC, regular deposit accounts are insured up to $250,000 each, and the cost to the insurance fund from Friday's closures will be nearly $101 million. Bank failures are likely to cost the FDIC fund around $65 billion through 2013, as against an earlier estimate of $40 billion, the agency revealed.

“Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage,” the FDIC said.

MB Financial has agreed to purchase $230.5 million in assets at a discount of $14.5 million, while the remaining assets will be retained by the FDIC for sale at a later stage. As per an agreement between the FDIC and MB Financial, MB Financial will share in the losses on about $181 million in assets.

Mitchell Feiger, president and chief executive officer of MB Financial, assured that the deposits at Heritage Community Bank will be safe and will remain readily available. Customers will have access to their deposits with debit cards and cheques over the weekend.

“We’re taking steps today to ensure that the deposit insurance system remains sound,” FDIC Chairman Sheila Bair said during FDIC’s board meeting at the agency’s Washington headquarters on Friday.

According to the FDIC, the agency regulates banks and insures deposits at 8,305 institutions with $13.9 trillion in assets.

The number of banks on the “problem list” of the FDIC has risen to 47 percent, taking the number to 252 in the quarter. The list is expected to expand as nearly 1,000 U.S. banks are likely to fail in the next three to five years as losses mount on commercial real estate loans.

The government has injected billions of dollars into those institutions to prevent larger banks from failing. However, bank failures are likely to increase as unemployment rises and home prices fall, resulting in more and more loan delinquencies.