Small banks in Ga., Mich. closed

WASHINGTON - Regulators have shut small banks in Georgia and Michigan, bringing the number of bank failures this year to 117 amid the struggling economy and a cascade of defaults on loans.

The Federal Deposit Insurance Corp. on Friday took over United Security Bank, based in Sparta, Ga., with $157 million in assets and $150 million in deposits, and Home Federal Savings Bank in Detroit, with $14.9 million in assets and $12.8 million in deposits.

Ameris Bank, based in Moultrie, Ga., agreed to assume the assets and deposits of United Security, while Liberty Bank and Trust Co., based in New Orleans, is buying the assets and deposits of Home Federal Savings.

With United Security, 21 Georgia banks have failed this year, more than in any other state. Most of the failures have involved banks in the Atlanta area, where the collapse of the real estate market brought economic dislocation. Failures also have been especially concentrated in California and Illinois.

As the economy has soured, with unemployment rising, home prices tumbling and loan defaults soaring, bank failures have cascaded and sapped billions out of the federal deposit insurance fund. It has fallen into the red.

Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. The FDIC still has billions in loss reserves apart from the insurance fund. It can also tap a Treasury Department credit line of up to $500 billion.

Last week, regulators shut nine banks — including California National Bank of Los Angeles, the fourth-largest failure this year with $7.8 billion in assets and 68 branches — owned by holding company FBOP Corp. It was a new milestone: nine was the highest number of banks closed in a day since the financial crisis began taking down banks last year. Minneapolis-based US Bancorp bought the deposits and most of the assets of the banks, which included two others in California, three in Texas, two in Illinois and one in Arizona.

Banks have been especially hurt by failed real estate loans. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.

If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks, especially, hold large concentrations of these loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.

The 117 bank failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the federal deposit insurance fund more than $27 billion so far this year, and hundreds more bank failures are expected to raise the cost to around $100 billion through 2013.

The number of banks on the FDIC's confidential "problem list" jumped to 416 at the end of June from 305 in the first quarter. That's the most since June 1994. About 13 percent of banks on the list generally end up failing, according to the FDIC.

The 117 failures this year compare with 25 last year and three in 2007.

To replenish the insurance fund, the FDIC wants the roughly 8,100 insured banks and savings institutions to pay in advance about $45 billion in premiums that would have been due over the next three years.

The Obama administration recently proposed a plan to provide infusions of money to small banks at low interest rates, provided they agree to increase lending to small businesses. Banks and credit unions that serve low-income areas would get aid at even lower rates to help small businesses in the hardest-hit rural and urban areas. The aid would come from money still available in the $700 billion federal bailout fund, which went mostly to large banks.

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