Silverton to be closed by FDIC rather than sold

The FDIC found buyers for Atlanta's failed bankers' bank, Silverton, but none of Silverton's suitors wanted to pay enough for it. After analyzing the offers, the FDIC decided it would be less costly to shut the bank down than to accept the bids received.

Bidders included the Carlyle Group with a consortium of private equity investors, including Lightyear Capital, Harvest Partners and Colony Capital. "We have to do what is least costly to our insurance fund and to shut it down for good was less costly than the bids we received," a spokesman for the FDIC told the Financial Times.
This would not have been the first time a private investment group bought one of the failed banks. Last month, Carlyle, with three other private-equity firms, bought the banking operations of Florida's BankUnited from federal regulators. Regulatory hurdles and restrictions do make these deals more difficult to finalize. U.S. regulators have not yet decided whether or not it's a good idea to allow private equity groups to buy banks.

Silverton was easier to shut down because it was a bankers' bank with about 1,400 small banks in 44 states as customers. When the FDIC took over Silverton it set up a "bridge bank" to service the other small banks and gradually assisted these small banks with setting up operations through another of the bankers' banks. Bankers' banks serve as the middle man between community banks and the Federal Reserve.

The failure of Silverton is expected to cost the FDIC $1.3 billion. Silverton had $3.3 billion in deposits at the time it failed and $4.1 billion in assets.

When Silverton first failed, Walter Moeling, a banking lawyer who represented Silverton, said that the bank suffered because its community bank clients had loan problems related to construction and real estate. Silverton absorbed these losses from its core community bank clients in the Southeast. Moeling believes, "In this case, the ultimate issue is the community bank portfolio. That has implications for all bankers' banks."

So far, the FDIC has stayed mum on this issue. Is it trying to keep this more distressing news quiet by closing the bank? If Moeling is correct, are other bankers' banks be at risk due to the construction and real estate loans in the portfolios of the community banks they serve. As I've written in the past, small banks are facing a commercial lending crisis. Can this lending crisis put more bankers' banks at risk?

Lita Epstein has written more than 25 books, including Reading Financial Reports for Dummies.

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