bank funeral - PAGE ONE Backstage at a Bank Funeral: Feds...

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PAGE ONE Backstage at a Bank Funeral: Feds Swoop In on an Unsuspecting Town By DAMIAN PALETTA June 5, 2008; Page A1 item below .) STAPLES, Minn. -- At 7 p.m. on Friday, Mayor Chris Etzler walked through the back door of First Integrity Bank. The lobby should have been closed for the weekend, but dozens of strangers in dark suits were bustling about with laptops and file boxes. Someone had just delivered 32 pizzas. Dan Walker, a top official with the Federal Deposit Insurance Corp., a Washington, D.C., bank regulator, had summoned Mr. Etzler to explain what was going on: The FDIC had just taken over First Integrity. "All the deposits are safe," Mr. Walker tried to reassure the mayor. "Nobody is going to have any problems." It isn't easy for 75 federal officials and contractors to slip into a small town undetected and liquidate an 89-year-old bank without anyone knowing. But that's what just happened in this old railroad town, population 3,200. It's a scene that's likely to repeat itself across the country as banks struggle through a painful credit cycle, overwhelmed by troubled mortgages and soured construction loans. First Integrity, which had two branches and $55 million in assets, was the fourth FDIC-insured bank to fail this year. That's one more than during the entire three-year stretch leading up to 2008. Some analysts predict that as many as 150 banks, mostly small and medium-size, could fail over the next three years. In its role as receiver for failed banks, the FDIC acts as a SWAT team, playing equal parts secret agent, medical examiner, salesman and grief counselor. The first 48 hours are typically the most frantic, as the agency must turn a failed bank inside out and oversee its sale -- or its orderly burial. 2 MORE An FDIC press release 3 announcing the assumption of deposits from First Integrity Bank. Secrecy is paramount to prevent a panic among the locals and a run on the bank. That could sink a bank and lead to runs on neighboring institutions. Banks only retain a percentage of their deposits in cash, and use the rest for things like loans, which means they don't have enough money on hand if everyone demands their deposits back at once. Created during the Great Depression to prevent such scares, the FDIC insures deposits at more than 8,000 banks, covering up to $100,000 per depositor in most cases. 1
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This note was uploaded on 02/19/2011 for the course AGEC 217 taught by Professor Deboer during the Fall '08 term at Purdue University.

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bank funeral - PAGE ONE Backstage at a Bank Funeral: Feds...

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