Illinois, Michigan Banks Shut by Regulators; Toll Climbs to 15

By Alison Vekshin and Ian Katz

Oct. 11 (Bloomberg) -- Illinois and Michigan banks with $123 million in deposits were closed by state regulators as tightening credit and a deepening real-estate slump pushes failures this year to 15, the most since 1993.

Meridian Bank of Eldred, Illinois, with $39 million in assets and $37 million in deposits, was shut by the state yesterday and National Bank of Hillsboro, Illinois, bought the deposits from the Federal Deposit Insurance Corp. Four branches in southern and western Illinois reopen today, a fifth opens Oct. 14, the FDIC said in a statement.

Main Street Bank of Northville, Michigan, with $98 million in assets and $86 million in deposits, was turned over to the FDIC yesterday. Monroe Bank & Trust of Monroe, Michigan, bought the deposits and today will open its two offices near Detroit as branches.

``The dramatic downturn in the residential real estate market unfortunately knocked the wind'' out of Main Street, Ken Ross, commissioner of Michigan's Office of Financial and Insurance Regulation, said in a statement.

Regulators have now closed the most banks in 15 years, and the collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. were among the biggest in history. The housing slump and tight credit led to enactment of a $700 billion bank rescue plan, and triggered a bankruptcy by Lehman Brothers Holdings Inc. and nationalization of Fannie Mae and Freddie Mac.

Insurance Fund

The FDIC said Main Street, based 25 miles west of Detroit, will cost the deposit insurance fund $33 million to $39 million and closing Meridian will cost $13 million to $14.5 million. The fund had $45.2 billion at the end of the second quarter.

In Michigan, Monroe Bank agreed to pay a premium of 1 percent for Main Street's deposits, the FDIC said. Monroe also will buy about $16.9 million in assets and has a 90-day option to acquire $1.1 million additional assets of the failed bank.

National Bank will purchase about $7.5 million of Meridian's assets and didn't pay the FDIC a premium for the right to assume all of the failed bank's assets, the FDIC said. The FDIC retains the remaining assets.

Meridian's four offices in the Illinois towns of Altamont, Carlyle and Eldred will open today, the Alton office near St. Louis reopens Oct. 14, the FDIC said.

All depositors of Main Street and Meridian will have uninterrupted access to their money, which will continue to be insured, the FDIC said.

Deposit Premiums

The FDIC insures deposits of up to $250,000 per depositor per bank and a similar amount for some retirement accounts at 8,451 institutions with $13.3 trillion in assets. The agency is doubling the premiums banks pay to replenish the reserves amid forecasts failures through 2013 will cost almost $40 billion.

Washington Mutual, the biggest savings and loan, sold its assets to JPMorgan Chase & Co. Sept. 25 after customers drained $16.7 billion in deposits in less than two weeks. Wachovia Corp., the sixth-biggest bank, agreed to be acquired by Wells Fargo & Co. for $11.7 billion, trumping an FDIC-brokered sale of banking operations to Citigroup Inc.

The FDIC is running a successor to California lender IndyMac Bancorp, closed in July in the fourth-largest bank seizure, and easing mortgage terms for more than 1,200 borrowers. The failure drained more than 10 percent from the U.S. insurance fund.

`Problem' Banks

The agency in August said 117 banks were classified as ``problem'' in the second quarter, a 30 percent jump from the first quarter. The agency doesn't name the ``problem'' lenders.

Before today's action, 39 banks failed since October 2000, according to a list at fdic.gov.

Regulators this year also closed Ameribank in Northfork, West Virginia, on Sept. 19; Silver State Bank of Henderson, Nevada, on Sept. 5; Integrity Bank of Alpharetta, Georgia, Columbian Bank and Trust of Topeka, Kansas, and First Priority Bank of Bradenton, Florida, in August; Reno-based First National Bank of Nevada and Newport Beach, California-based First Heritage Bank in July; Staples, Minnesota-based First Integrity Bank and ANB Financial in Bentonville, Arkansas, in May; Hume Bank in Hume, Missouri, in March; and Douglass National Bank in Kansas City, Missouri, in January.

To contact the reporters on this story: Alison Vekshin in Washington at avekshin@bloomberg.net; Ian Katz in Washington at ikatz2@bloomberg.net.