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Two New Banks Fail Despite Slowing Pace Nationally

Two financial institutions bucked a trendy crawl for bank failures by folding Friday, pushing the 2011 tally to 73. The ""FDIC"":http://www.fdic.gov/ swooped in to corral the fallout from the collapse of Nevada City-based Citizens Bank of Northern California and Norkfolk-based Bank of the Commonwealth, paying out for the former and keeping assets from the latter for disposition.

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California state regulators turned off the lights at Citizens Bank, making it the fourth to fail in the state this year, and appointed the FDIC to the role of receiver.

""Tri Counties Bank"":http://www.tricountiesbank.com/tcb/ agreed to mop up the mess, assuming $288.8 million in assets and $253.1 million in deposits from the collapsed institution. With the FDIC covering a $37.2-million tab, all seven branches formerly under the Citizens Bank brand reopened for depositors Monday as new locations for Tri Counties.

Also on Friday, Virginia state regulators shuttered the Bank of the Commonwealth, which went under with $985.1 million in assets and $901.8 million in deposits.

North Carolina-based ""Southern Bank and Trust Company"":http://southernbankandtrust.com/ moved to take on $924.3 million of the assets and over 20 branches around Virginia, which reopened their doors on schedule Monday.

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The FDIC said that it will retain the remainder of the assets in its role as receiver.

Speaking with _MReport_, Greg Hernandez, a spokesperson for the FDIC, sheds light on the way receiverships work.

He says that the FDIC forms a limited liability corporation for investors who sign their names to loss-share transactions. Investors sopping up the loans, assets, and equity operate under the entity until it dissolves, a lengthy arrangement that typically takes three to five years.

The agency takes responsibility for selling off any assets or property it is unable to unload in the bank failure, he says.

Asked what the two new failures mean for FDIC forecasts, Hernandez admits that the country is ""likely to see some failures going forward"" but holds the line about an exodus in large bank failures.

He calls 2010 ""likely the high-water mark for bank failures,"" a year that he says saw 127 incidents of collapse in October ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô still few when compared with 73 failures seen in 2011.

In other good news, he says, the average number of assets for a bank failure this year total $400 million, down considerably from a $1.6-billion average last year.

Costs to the FDIC, an independent federal agency outside the congressional appropriations process, also continue to shift downward, he says, with deposit expenses running at $5.9 million this year ├â┬ó├óÔÇÜ┬¼├óÔé¼┼ô a far cry from $37 billion in rescue funds over 2009.

Why the glacial pace?

""There's been an improvement in the banking industry,"" Hernandez says, pointing to a recent decision by the agency to ""shut down a temporary regional office"":https://themreport.com/articles/fewer-bank-failures-leads-fdic-south-2011-09-16 by 2012. ""Initially the crisis [was] weighted heavily toward mortgages. It has now shifted down to community banks.""

About Author: Ryan Schuette

Ryan Schuette is a journalist, cartoonist, and social entrepreneur with several years of experience in real-estate news, international reporting, and business management. He currently lives in the Washington, D.C., area, where he freelances for DS News and MReport.
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