It’s Back – Bank Failure Friday

It’s been a long while since we’ve had a Bank Failure Friday. Seems like during 2009 through 2011, it was happening every third or fourth week. Fortunately, the flood of failures stopped in 2013. But, if you were betting on the failure of Atlanta’s Capitol City Bank and Trust, your ship finally came in today. And on Friday the 13th to boot.

Capitol City Bank & Trust Company, Atlanta, Georgia, was closed today by the Georgia Department of Banking & Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First-Citizens Bank & Trust Company, Raleigh, North Carolina, to assume all of the deposits of Capitol City Bank & Trust Company.

The eight former branches of Capitol City Bank & Trust Company will reopen during normal business hours. The failed bank will operate as Capitol City Bank & Trust, a division of First-Citizens Bank & Trust Company. Depositors of Capitol City Bank & Trust Company will automatically become depositors of First-Citizens Bank & Trust Company. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship in order to retain their deposit insurance coverage up to applicable limits. Customers of Capitol City Bank & Trust Company should continue to use their current branch until they receive notice from First-Citizens Bank & Trust Company that systems conversions have been completed to allow full-service banking at all branches of First-Citizens Bank & Trust Company.

I guess we should be glad that the economy has improved enough that the rate of Georgia bank failures has slowed down to the point where it’s a rare occurrence. And if you happened to be a depositor at Capitol City, you can find out more details here.

24 comments

  1. George Chidi says:

    A couple of notes on this one. The chairman of Capitol City Bank & Trust Company’s board is C.T. Vivian — the 90-year old contemporary of Martin Luther King, Jr. and winner of the Presidential Medal of Freedom.

    I bet a dollar that the failure has something to do with the collapse of Morris Brown. It’s possible that the bank became a lender of last resort for the school, given Vivian’s support of Morris Brown over the years. But it could be anything. I fear they put too many eggs in one basket somewhere.

    The board spooned out its founder 16 months ago to work on “strategic initiatives,” promoting its operations exec to CEO and President. John Turner, however, is a bit of an enigma. He’s the CEO of a politically-connected minority owned, minority focused bank in Atlanta, rubbing shoulders with Michael Thurmond and C.T. Vivian … and there’s no bio on him in public. His LinkedIn profile is incomplete. Big flags.

    • John Konop says:

      If true, this is a lesson for all…..money matters decisions should soley be based on viability not subjective emotions….. It is fine to support a project for various reasons….but that should not override a proper fiscal test….This is how tax payers get left holding the bag….We have politicians supporting projects for political purposes on both sides….we end up debating projects, before they meet a fiscal sanity check….Meanwhile when it goes bad….we see finger pointing….If tax payers are at risk….I have proposed for years tough fiscal ratios….if they tax payers are not at risk than it should be about sound mind and full disclosure…both sides take an irrational position….Dems want to open up lending without proper risk ratios….GOP wants to deregulate tax payer guaranteed lending….same problem different spin…With derivatives being deregulated this will create a bubble that will sink like last time…many on both sides would never risk their own money that way…

    • George Chidi says:

      Well … only in the sense that a unique lender serving the black community has failed. But truly, I think the loss is more symbolic than anything.

      Net wealth of African American households in America is insanely low — the result of white flight decimating the value of homes owned by black households, the historic discrimination in lending which limits generational wealth accumulation, and lower household incomes. It’s an average of about $12,000 per household. It’s considerably higher in Atlanta — I’d guess it at closer to $20,000 — though still far below white families which are over $100,000.

      That said … if the average black household in Atlanta is worth $20,000, then with about 600,000 black households in metro Atlanta, that’s $12 billion in black wealth here. $300 million is … well, not nothing. But not a substantial amount relative to what we’re working with.

      • MattMD says:

        As far as net wealth goes for blacks I would also point out the Jim Crow laws. Sure, slavery was made illegal in the 1860’s but the laws in the south we had up until 1960’s would have made Saudi Arabia blush.

        There is a lot of old money in Georgia and I would bet a slight majority of it came from planters and the slave system.

  2. georgiahack says:

    I think that this was a bank of last resort for a lot of folks who other banks would not pick up as customers (bad credit, bounced checks, etc.). I hope that when First Citizens picks them up they don’t get rid of the customers who normally would not be allowed to have a First Citizens account.

    • John Konop says:

      You cannot have it both ways…you either charge for the risk or go out of business…when banks go bk….we tax payers take the hit…both parties flip flop all over the place on this….ie student loans, home loans, bonding….all I hear is the spin…

      • saltycracker says:

        FDIC insurance at the banks go up….the public gets burned by the consolidations and lack of competition…..The big banks are at least 33%larger than before the crisis and now engaging in less small business and riskier big business….derivatives, M and A loans, lots of money is chasing the stock of fewer public companies than in our lifetime.

        We might need to print a few trillion more paper one of these days….

      • georgiahack says:

        John,
        I am not talking about making bad loans or huge defaults. I am talking about someone who lost a job and bounced a check to kroger. Or some guy who goes to jail and owed money and can’t pay it back til they get out. What happens to a lot of folks is that they cannot use a traditional bank account because of a blight on their record, not even a saving account. Its a huge problem for a lot of people – Not having somewhere to put your money, or cash your paycheck, or pay your bills. This bank would allow those folks to open an account (with very limited services, ie no check card) and not be dependent on friends cashing their checks or finding a ride to a walmart (they have a bank of last resort now as well).

        These folks are not what make banks fail, even if they do mess up, it is the big stuff like loans, etc that really matter.

        If you get on one of those bad banking lists you are there for at least four years.

        • John Konop says:

          The problem is fee income is a big part of a bank….usually that fee income is charged to risky customers…part of it is to offset the cost verse servicing….part of it like it or not is for profit….If you do not make money on this and or take a hit…you have to make up that profit via another income source….Loans are 70% of the time guaranteed by the government….once again loans are a fee business as well…smaller banks sell them off and take profit….very few loans small banks actually take full risk…for many reasons….one of them is capital ratios….If the do take real risk….on loans and or hold them via not a market to buy the risk….than if they go bad….you get bank has problems….I am not making a value judgment….just giving you a macro on how the system works….

  3. Baker says:

    Judging by George’s comments, this does seem to maybe be a special situation but worth noting is a look back at Dodd-Frank, the genius legislation that was supposed to regulate our banks away from the disaster that was 2008… How’d it turn out? Well, not so great for smaller banks.

    “The competitive disadvantage is significant. The study quotes testimony before Congress in 2012 from the chair of the Community Bankers Council of the American Bankers Association, William Grant, who said that the average compliance costs for banks in the post-Dodd-Frank world was 12 percent of operating costs. However, for community banks, “[The] cost of regulatory compliance as a share of operating expenses is two-and-a-half times greater for small banks than for large banks.”

    Too Big to Fail is now an even bigger problem than before. Any addressing of the moral hazard is impossible unless Dodd-Frank is repealed or hugely reformed.

    http://www.thefiscaltimes.com/Columns/2015/02/12/Spectacular-Way-Too-Big-Failure-Dodd-Frank

    • Harry says:

      It’s frustrating when so many on the right, left and center agree with you…but nothing substantial will change.

  4. saltycracker says:

    A Senator makes $174K @ year with extraordinary benefits, has a multi-million dollar campaign program, is influenced by folks 10 times smarter and richer and has a groupie following to insure 51% are on board or have a worse choice…..the best help the taxpayer could have is term limits.

  5. azhat says:

    Take a look at the bank’s President ousting [publicized as simply a personnel change] Sept 2013 . The reasons behind that (suspect loan practices including critical loans to “friends”). You’ll find more SOX compliance on your feet than you’ll find in this bank unfortunately. One day reading that the FDIC to start an investigation in the near future wouldn’t surprise me one bit. Especially with all the questions they’ve already been asking. ijs

  6. Harry says:

    We’ve been aware for awhile of internal details of another local bank in critical need of closure and criminal investigation. OCC has been fully informed of the smoking guns. I’ve developed a conspiracy theory around why OCC doesn’t shut that one down.

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