Recordpub.com - Failure of AmTrust Bank may exceed $2 billion

Associated Press

The failure of the Cleveland-based AmTrust Bank is expected to cost the Federal Deposit Insurance Corp. an estimated $2 billion.

The FDIC on Friday took over Ohio's AmTrust Bank, the fourth-largest bank to fail this year, with about $12 billion in assets and $8 billion in deposits.

About a year ago, the federal Office of Thrift Supervision put restrictions on AmTrust because of concern that its reserves against losses were dangerously low. The regulators told the bank to limit new loans for land acquisition, development or speculative residential construction.

In addition to its branches in Ohio, AmTrust -- formerly Ohio Savings -- had branches in Florida and the Phoenix area.

New York Community Bank, based in Westbury, N.Y., agreed to assume the deposits of AmTrust Bank and about $9 billion of its assets.

The FDIC will retain the rest for eventual sale. AmTrust's reopened reopen starting Saturday as offices of New York Community Bank, the FDIC said.

In addition, the FDIC and New York Community Bank agreed to share losses on about $6 billion of the failed bank's loans and other assets.

The FDIC shut down six banks Friday, bringing to 130 the number of U.S. banks to be brought down so far in 2009 by recession and mountains of bad debt.

Also seized by the FDIC on Friday were three Georgia banks: Buckhead Community Bank, based in Atlanta, with $874 million in assets and $838 million in deposits; First Security National Bank, based in Norcross, Ga., with $128 million in assets and $123 million in deposits; and Tattnall Bank, of Reidsville, Ga., with assets of $49.6 million and deposits of $47.3 million.

The FDIC expects the cost of bank failures to grow to about $100 billion over the next four years.

Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. The FDIC still has about $21 billion cash in loss reserves apart from the insurance fund. It can also tap a Treasury Department credit line of up to $500 billion.

Banks have been especially hurt by failed real estate loans. Banks that had lent to seemingly solid businesses are suffering losses as buildings sit vacant. As development projects collapse, builders are defaulting on their loans.

If the economic recovery falters, defaults on the high-risk loans could spike. Many regional banks hold large concentrations of these loans. Nearly $500 billion in commercial real estate loans are expected to come due annually over the next few years.

The 130 bank failures are the most in a year since 1992 at the height of the savings-and-loan crisis. They have cost the federal deposit insurance fund more than $28 billion so far this year. They compare with 25 last year and three in 2007.