The FDIC takeover of Atlanta’s Silverton Bank, (one of three failures last Friday) a “bank for banks,” raises some interesting question for its owners, who are smallish banks in smaller towns with significant interactions with the real economy.
Some items of note in an excerpt from financial-planning.com:
The failure of Silverton Bank of Atlanta on Friday presents new worries to institutions that have relied on the $4.1 billion-asset bankers’ banks and others like it, observers said.
Silverton, whose operations were folded into a bridge bank formed by the Federal Deposit Insurance Corp., leaves behind over 1,000 bank customers that used its services, as well as 400 bank stockholders and other institutions that participated in loan deals Silverton originated.
“This is going to have an effect on all the downstream participant banks they sold those participations to,” said Ralph MacDonald 3rd, a partner at Jones Day in Atlanta.
The failure, the first ever of a bankers’ bank and the industry’s 30th this year, created a new wrinkle in the disastrous fallout from the housing crisis hitting the Southeast. Silverton was the largest of the six banks that have failed in Georgia this year.
Another short informational excerpt from Seeking Alpha as to why this failure matters:
The first bank failure announced this evening—#30 on the year—was the largest so far this year. Silverton Bank of Atlanta had $4.1 billion of assets and $3.3 billion worth of deposits, all within the FDIC’s insurance limits. FDIC anticipates the failure will cost the Deposit Insurance Fund $1.3 billion.
As noted last week, FDIC’s preferred method of resolving failed banks is to sell their assets to another, healthy bank. This minimizes costs to the DIF as well as disruption for customers.
In this case, FDIC apparently wasn’t able to find a buyer and will instead operate a “bridge bank” for Silverton’s customers.
A bridge bank makes since, but how fast will the owners of Silverton (those 400 banks) realize their losses on this investment? What formerly would have been a purely economic question, has become a political question, because of possible cascading events.
As John Carney stated, over at Business Insider’s Clusterstock:
There had some question about whether or not Silverton was too big to fail or too connected to fail. Some Georgia bankers had argued that its collapse could take at least 8 to 12 banks down with it.
However, it need not come to that to really put the squeeze the smaller communities where these member and owner banks operate.
Being from Atlanta, I reached out to a veteran member of the commercial finance community who made a point, I had not even considered, “I hear the political class talking about the SBA (small business administration) ramping up lending (which would be a good thing), but at the rate things are going, few will be left in the industry (still employed) that can even write a loan.”
