Friday, August 23, 2013

This Week in Bank Failures

London this week was talking about the death of an intern. The 21-year-old intern at Bank of America died a week ago of what appears on the surface to be a stress-related illness after reportedly working 72 hours straight. It is expected in banking centers like London and New York that 50-year-old bankers would regularly fall victim to the high-pressure lifestyle of banking, but the death of a young intern one week before the end of the summer internship period has shocked even those who accept that banking can be a deadly business. The episode has led to some superficial soul-searching. Is a banking internship a form of slavery? Are 20-hour working days even legal? If a bank’s management is so slipshod as to turn a blind eye when a worker pushes beyond the point of fatigue-induced hallucinations, might this same dull thinking lead to equally deficient decisions on financial matters?

There is not much left of the bankrupt Capitol Bancorp Ltd. after tonight’s closing of Sunrise Bank of Arizona by state banking regulators. The failed bank had six locations in five Arizona cities and $200 million in deposits. Oklahoma-based First Fidelity Bank NA is taking over the deposits and purchasing the assets. Most of Capitol Bancorp’s other banking subsidiaries had failed already or had been sold in distress after faltering under its high-cost, high-risk business model. Capitol Bancorp has responded to its troubles with a barrage of lawsuits against federal and state regulators, trying unsuccessfully to delay or prevent bank closings. Meanwhile, it has been forced to rewrite its bankruptcy plan several times, most recently on July 17.

There was a second medium-sized bank failure tonight. State regulators in Tennessee closed Community South Bank, which had 15 branches and $378 million in deposits. Alabama-based CB&S Bank is taking over the deposits and purchasing one third of the assets. The two largest bank failures of the year so far have been Mountain National Bank, which failed in June, and Community South Bank, both banks with broad footprints in Tennessee.