Regulators shut down small New Jersey bank; makes 120 US bank failures this year

Regulators close small NJ bank

WASHINGTON — Regulators on Friday shut down a small New Jersey bank, boosting to 120 the number of U.S. bank failures this year amid the tough economic climate and growing loan defaults.

The Federal Deposit Insurance Corp. took over ISN Bank in Cherry Hill, N.J., with $81.6 million in assets. New Century Bank, based in Phoenixville, Pa., agreed to assume the assets and deposits of the failed bank. ISN Bank’s single branch will reopen Monday as a branch of Customers Bank, the name under which New Century Bank does business.

In addition, the FDIC and New Century Bank agreed to share losses on $64.8 million of ISN Bank’s loans and other assets.

The failure of ISN Bank is expected to cost the deposit insurance fund $23.9 million.

With 120 closures nationwide so far this year, the pace of bank failures exceeds that of 2009, which was already a brisk year for shutdowns. By this time last year, regulators had closed 94 banks.

The pace has accelerated as banks’ losses mount on loans made for commercial property and development. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.

The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of June 30.

The number of banks on the FDIC’s confidential “problem” list jumped to 829 in the second quarter from 775 three months earlier, even as the industry as a whole had its best quarter since 2007, making $21.6 billion in net income. Banks with more than $10 billion in assets — only 1.3 percent of the industry — accounted for $19.9 billion of the total earnings.

The FDIC expects the cost of resolving failed banks to total around $60 billion from 2010 through 2014.

The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.

Depositors’ money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted in July.