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March 15, 2010

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FDIC oversees 28th bank failure

UNITED States regulators have shut down Park Avenue Bank in New York, marking the 28th failure this year of a federally insured bank.

The Federal Deposit Insurance Corp was appointed receiver of Park Avenue Bank last Friday. It had US$520.1 million in assets and US$494.5 million in deposits as of December 31.

The FDIC said the bank's deposits will be assumed by Valley National Bank, based in Wayne, New Jersey. Valley National agreed to pay a small premium to assume all of the deposits. It also agreed to purchase essentially all of Park Avenue Bank's assets.

Park Avenue Bank's four branches were due to reopen on Saturday as offices of Valley National Bank.

The pace of bank seizures this year is likely to accelerate in coming months, FDIC officials have said.

Funds flow out

As the US economy has weakened, bank failures have mounted, sapping billions of dollars out of the deposit insurance fund. It fell into the red last year, hitting a US$20.9 billion deficit as of December 31.

Park Avenue Bank's failure is expected to cost the FDIC's insurance fund US$50.7 million.

The number of banks on the FDIC's confidential "problem" list jumped to 702 in the fourth quarter from 552 three months earlier, even as the industry squeezed out a small profit.

Banks earned US$914 million, compared with a US$37.8 billion loss in the fourth quarter of 2008, at the height of the financial crisis. Still, nearly one in every three banks reported a net loss for the latest quarter.

The 140 bank failures last year were the highest annual tally since 1992, at the height of the savings and loan crisis. They cost the insurance fund more than US$30 billion. There were 25 bank failures in 2008 and just three in 2007.

The FDIC expects the cost of resolving failed banks to grow to about US$100 billion over the next four years. It mandated last year that banks prepay about US$45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.


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