Regulators shut Commerce Bank of Southwest Florida; marks 124th US bank failure this year

Small Florida bank shuttered, 124th this year

WASHINGTON — Florida banking regulators on Friday shut down Commerce Bank of Southwest Florida, marking the 124th U.S. bank to succumb this year to the struggling economy and rising loan defaults.

The Federal Deposit Insurance Corp. took over the small bank in Fort Myers, Fla., with $79.7 million in assets and $76.7 million in deposits.

Central Bank, based in Stillwater, Minn., agreed to assume the deposits and assets of Commerce Bank of Southwest Florida. The failed bank’s sole branch will reopen Monday as a branch of Central Bank. In addition, the FDIC and Central Bank agreed to share losses on roughly $61 million of Commerce Bank’s loans and other assets.

The failure of Commerce Bank is expected to cost the federal deposit insurance fund about $23.6 million.

It was the 12th failure of a Florida bank this year. Failures also have been concentrated in California, Georgia and Illinois.

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

The banking crisis has grown so intense that it has started to capture banks that regulators deemed healthy only months ago.

This month has seen the failure of three banks that received government money purportedly earmarked to improve lending by injecting capital into healthy banks.

California-based Pacific Coast National Bank and United Commercial Bank both were seized by the FDIC this month, and big commercial lender CIT Group Inc. filed for bankruptcy. The three received a total of $2.63 billion from the $700 billion financial bailout program. All of that taxpayer money is likely to be lost.

It comes after then-Treasury Secretary Henry Paulson said last October in announcing the program that “there is no reason to expect this program will cost taxpayers anything.”

In all, more than two dozen banks that received “healthy bank money” have faced regulatory actions suggesting they are not stable and could fail. These actions range from informal written agreements to cease-and-desist orders — the last notice regulators issue before closing a bank.

More than $5 billion in taxpayer money could be lost, depending on which of these shaky banks survive.

The developments demonstrate how quickly the banking system has deteriorated since the banks started receiving money last fall.

Since some of the banks already were under scrutiny before they received money, the enforcement records also raise questions about how officials decided which banks should get taxpayer money that wasn’t supposed to be at risk.

The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years.

Depositors’ money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. The FDIC still has about $21 billion cash in loss reserves apart from the insurance fund. It can also tap a Treasury Department credit line of up to $500 billion.

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 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 124 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 $28 billion so far this year. They compare with 25 last year and three in 2007.

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.