Illinois, Michigan Banks Fail; Boosts Closings to 15 (Update1)

Illinois, Michigan Banks Fail; Boosts Closings to 15 (Update1)

By Alison Vekshin and Ian Katz

Oct. 10 (Bloomberg) -- Banks in Illinois and Michigan were closed by
regulators today, boosting to 15 the failures this year, as tightening
credit and a deepening housing slump accelerate government action to
shore up financial institutions.

Meridian Bank of Eldred, Illinois, with $39 million in assets and $37
million in deposits, was closed by the state and the Federal Deposit
Insurance Corp. was named receiver. National Bank of Hillsboro,
Illinois, acquired the deposits and four branches will reopen tomorrow
and one on Oct. 14, the FDIC said.

Main Street Bank of Northville, Michigan, with $98 million in assets
and $86 million in deposits, was shut by the state and turned over to
the FDIC. Monroe Bank & Trust of Monroe, Michigan, acquired the
deposits and tomorrow will open the two offices as branches, the FDIC
said in a statement.

``The dramatic downturn in the residential real estate market
unfortunately knocked the wind'' out of Main Street, Ken Ross,
commissioner of Michigan's Office of Financial and Insurance
Regulation, said in a statement.

Regulators have now closed the most banks in 15 years, and the
collapses of Washington Mutual Inc. and IndyMac Bancorp Inc. were
among the biggest in history. The deepening housing slump and tight
credit led to enactment of a $700 billion bank rescue plan, and
triggered a bankruptcy by Lehman Brothers Holdings Inc. and
nationalization of Fannie Mae and Freddie Mac.

Insurance Fund

The FDIC said closing Main Street will cost the deposit insurance fund
$33 million to $39 million while closing Meridian will cost $13
million to $14.5 million. The fund had $45.2 billion at the end of the
second quarter.

In Michigan, Monroe Bank agreed to pay a premium of 1 percent for Main
Street's deposits, the FDIC said. Monroe also will buy about $16.9
million in assets and has a 90-day option to acquire $1.1 million
additional assets of the failed bank.

National Bank will purchase about $7.5 million of Meridian's assets
and didn't pay the FDIC a premium for the right to assume all of the
failed bank's assets, the FDIC said. The FDIC retains the remaining
assets.

Meridian's four offices in the Illinois towns of Altamont, Carlyle and
Eldred will reopen for normal hours tomorrow, and the Alton office
will reopen Oct. 14, the FDIC said.

All depositors of Main Street and Meridian will have uninterrupted
access to their money, which will continue to be insured, the FDIC
said.

Deposit Premiums

The FDIC insures deposits of up to $250,000 per depositor per bank and
a similar amount for some retirement accounts at 8,451 institutions
with $13.3 trillion in assets. The agency is doubling the premiums
banks pay to replenish the reserves amid forecasts failures through
2013 will cost almost $40 billion.

Washington Mutual, the biggest savings and loan, sold its assets to
JPMorgan Chase & Co. Sept. 25 after customers drained $16.7 billion in
deposits in less than two weeks. Wachovia Corp., the sixth-biggest
bank, agreed to be acquired by Wells Fargo Co. for $11.7 billion,
trumping an FDIC-brokered sale of banking operations to Citigroup
Inc.

The FDIC is running a successor to California lender IndyMac Bancorp,
closed in July in the fourth-largest bank seizure, and easing mortgage
terms for more than 1,200 borrowers. The failure drained more than 10
percent from the U.S. insurance fund.

`Problem' Banks

The agency in August said 117 banks were classified as ``problem'' in
the second quarter, a 30 percent jump from the first quarter. The
agency doesn't name the ``problem'' lenders.

Before today's action, 39 banks failed since October 2000, according
to a list at fdic.gov.

Regulators this year also closed Ameribank in Northfork, West
Virginia, on Sept. 19; Silver State Bank of Henderson, Nevada, on
Sept. 5; Integrity Bank of Alpharetta, Georgia, Columbian Bank and
Trust of Topeka, Kansas, and First Priority Bank of Bradenton,
Florida, in August; Reno-based First National Bank of Nevada and
Newport Beach, California-based First Heritage Bank in July; Staples,
Minnesota-based First Integrity Bank and ANB Financial in Bentonville,
Arkansas, in May; Hume Bank in Hume, Missouri, in March; and Douglass
National Bank in Kansas City, Missouri, in January.

To contact the reporters on this story: Alison Vekshin in Washington
at avekshin@bloomberg.net; Ian Katz in Washington at
ikatz2@bloomberg.net.