Only nine bank failures over the past 35 months. An annualized Bank Failure Rate of less than 0.1%.
No bank larger than $150 million in deposits. No mega-banks. Small ripples across the U.S. financial system.
But many of these small bank failures have interesting background stories.
There is greed - some times within the bank and some times by customers. Or going for the gold by implementing a “can’t lose” new business strategy. There is fraud by bank management or customers. There was arson. And, sadly, there even was death.
Many of these stories would provide a basis for a “Law & Order” episode!
Almena State Bank: This bank was associated with an alleged multi-billion dollar check kiting scheme, according to the DOJ District of Kansas indictment. According to the DOJ press release, The indictment alleges the defendants defrauded Almena State Bank in Almena, Kan., and six other banks. The indictment alleges investigators examined unfunded checks and wire transfers totaling more $2 billion sent by defendant as part of the scheme. That included 409 wire transfers and 7,584 checks. Estimated loss: $18.3 million, or 26% of total assets.
City National Bank of New Jersey: The inspector general cited the primary cause of City National’s failure as the board and management’s decision to undertake a new business strategy that led to dramatically increased transaction activity from an expanded base of money service business customers. The bank pursued this business strategy without implementing adequate policies, procedures, risk management commensurate with the risk of its activities , or controls to comply with the Bank Secrecy Act. The bank’s increase in money service business customer activity resulted in severe Bank Secrecy Act/Anti-Money Laundering compliance deficiencies.” Estimated loss: $2.5 million, or 2% of total assets.
Resolute Bank: The inspector general attributes this failure to the board and management’s poor planning and lack of oversight over bank operations as the bank ventured into mortgage banking, focusing on the origination and sale of government insured and guaranteed loans, without a valid strategic or capital plan. Ineffective oversight of these ventures, combined with excessive overhead expenses, resulted in operating losses and critically deficient earnings, asset quality, and capital. Corporate governance deficiencies also contributed to the bank’s failure; specifically insufficient oversight by the board and management, and weak communication between management and members of the board. Estimated loss: $2.2 million, or 8% of total assets.
Ericson State Bank: In this bank failure, the inspector general attributed the failure to a critically deficient Board of Directors (Board) and poor Management oversight. The Bank President exercised unrestrained dominance over the Bank's operations, including the lending function. Specifically, the Bank President serviced loans associated with entities owned by his son (related-entity lending); extended funds to these related entities without seeking Board-required Loan Committee approval; and did not obtain proper documentation to support the credits. Estimated loss: $14.1 million, or 14% of total assets.
The Enloe State Bank: In the Enloe State Bank failure, the inspector general indicated that the President and the senior-level Vice President perpetrated fraud by originating and concealing a large number of fraudulent loans over many years.” According to The Dallas Morning News, “When a small-town, East Texas bank caught fire the day before state inspectors were to examine the books, few thought it was a coincidence. The May 2019 fire at Enloe State Bank in Cooper was started in the bank’s board room. Someone had stacked files on a conference table and set it ablaze, court records show. The bank’s former president pleaded guilty to conspiracy to commit bank fraud and arson.” Estimate loss: $21 million, or 57% of total assets.
Washington Federal Bank for Savings: In the Washington Federal failure, the inspector general cited fraud in the bank’s loan activity perpetrated by bank employees, who were accused of conspiring to embezzle. The bank president was found hanged in the home of a customer. Estimated loss: $82.6 million, or 50% of total assets.