Colombian Bank and Trust of Topeka Kansas Closed yesterday

Another bank has fallen afoul of the conservative movement deregulation of financial institutions. Colombian Bank and Trust of Topeka Kansas was closed yesterday by the FDIC. According to the FDIC's Press Release (PR-69-2008)

To protect the depositors, the FDIC entered into a purchase and assumption agreement with Citizens Bank and Trust, Chillicothe, Missouri, to assume the insured deposits of The Columbian Bank and Trust Company.

The nine branches of The Columbian Bank and Trust Company will reopen on Monday as branches of Citizens Bank and Trust. Depositors of the failed bank will automatically become depositors of Citizens Bank and Trust. 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.

Over the weekend, customers of The Columbian Bank and Trust Company Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of June 30, 2008, The Columbian Bank and Trust Company had total assets of $752 million and total deposits of $622 million, of which there were approximately $46 million in uninsured deposits held in approximately 610 accounts that potentially exceeded the insurance limits. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers.

The Columbian Bank and Trust Company also had approximately $268 million in brokered deposits that are not part of today's transaction. The FDIC will pay the brokers directly for the amount of their insured funds.

The International Herald Tribune reports that the problem was "losses on soured real estate loans."

Columbian reported $92 million in delinquent loans in the second quarter, citing a "volatile real estate market." The bank set aside $9.2 million for loan losses in the first quarter, up nearly 30 percent from the $7.1 million it set aside in the first quarter of 2007.

A financial statement for the bank shows $482.3 million in real estate loans in the first quarter, including $439.4 million in construction and development and commercial real estate loans. Columbian has said that five borrowers represented nearly half the $92 million in problem loans.

Construction and development loans are areas that have been under greater scrutiny from federal examiners, the FDIC has said, and a growing number of banks have cited weakness in those areas of their loan portfolios.

If the problem was commercial real estate loans, then this bank failure may have been a result more of the souring economy than of bad mortgages.

Regarding home mortgages, the FDIC has announced a new mortgage program. This should bail out some mortgage holders as well as help the financial institutions holding the mortgages.

On Wednesday, the FDIC announced a program under which thousands of troubled home borrowers with loans from IndyMac will be able to switch into 30-year, fixed-rate mortgages with interest rates capped at around 6.5 percent in what could be an important test case for future bank resolutions.

FDIC officials have said the agency expects to raise insurance premiums paid by banks and thrifts to replenish its reserve fund after paying out billions of dollars to depositors at IndyMac. The fund, currently at $53 billion, is expected to take a hit from IndyMac of $4 billion to $8 billion.

FDIC Chairman Sheila Bair said recently she expects turbulence in the banking industry to continue well into next year, and more banks to appear on the agency's internal list of troubled institutions.

Of the 8,500 or so banks in the country, 90 were considered to be in trouble in the first quarter. The FDIC doesn't disclose the banks' names.

Only 13 percent of banks that make the list fail, on average, and most are nursed back to health or acquired by stronger institutions, according to Bair.

Federally insured banks and thrifts set aside a record $37.1 billion to cover losses from soured mortgages and other loans in the first quarter, when profits were nearly halved.

If 90 banks were considered to be in trouble, that is 1.06% of the 8,500 total banks. That was five months ago, though, and the economy has gotten worse. The suggestion that Colombian went under because of commercial real estate loans suggests that there may be more banks on the troubled list now than just 90, and the declining economy will add even more.

Add to that the number of banks and investment institutions currently trying to rebuild their capital base, thus simultaneously restricting lending along with recent reports that other nations appear to be entering a recession, then hopes that the US economy will turn around even in 2009 are just that - only hopes.

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Bill Moyer's show last night about the collapse of the American middle class strongly suggests that the American economy is not coming back anytime soon. "Soon" would be at a minimum five years. Remember that the American economy produces to meet demand for goods and services, and that 70% of that demand is from mostly middle class consumers. Much of the Investment demand is based on anticipated consumption demand, so adding investment funds is not going to help, either. For there to be real recovery, the American middle class has to recover and at the moment there is not only no sign that it will, instead it appears to be headed even further down.

Here is the transcript of Bill Moyer's show last night.

Here is a video of the August 22nd show.