Banks Closed

April 10 (Bloomberg) -- Banks in Colorado and North Carolina were shut as rising unemployment and a loss of jobs shrinks household wealth in the deepest recession in a quarter century, pushing the toll of U.S. bank failures to 23 this year.

New Frontier Bank in Greeley, Colorado, with $2 billion in assets and $1.5 billion in deposits, and Cape Fear Bank in Wilmington, North Carolina, with $492 million in assets and $403 million in deposits, were shut today by state regulators. The Federal Deposit Insurance Corp., named receiver, gave New Frontier depositors 30 days to transfer accounts, and arranged to have Cape Fear’s assets to be assumed by First Federal Savings and Loan Association of Charleston in South Carolina.

“All insured depositors of New Frontier are encouraged to transfer their insured funds to other banks,” the FDIC said in a statement. In North Carolina, the agency said: “Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relations to retain their deposit insurance coverage.”

The U.S. has lost about 5.1 million jobs since the recession began in late 2007 and unemployment jumped to 8.5 percent in March, the highest since 1983, according to the U.S. Labor Department. Home prices in 20 cities fell 19 percent in January from a year earlier, the fastest drop on record, a private survey showed. The Obama administration has taken steps to help the economy, including a $787 billion stimulus package aimed at creating or saving 3.5 million jobs.

The FDIC created the Deposit Insurance National Bank of Greeley, which will be open for 30 days to give depositors time to find a new lender. Bank of the West in San Francisco was hired to run New Frontier’s main office and two branches, the agency said. The FDIC has the power to create a bank to ensure customers have access to insured funds where no bank agrees to assume insured deposits, the agency said.

$801 Million Cost

The Colorado failure will cost the FDIC’s insurance fund $670 million, while the cost to close Cape Fear is $131 million, the agency said in separate statements.

First Federal will assume Cape Fear’s deposits and eight branches along North Carolina’s southern coast will open April 13 as First Federal offices, the FDIC said today. First Federal will buy $468 million in assets and agreed to share with the FDIC in any losses on about $395 million of Cape Fear’s assets, the FDIC said. The cost to the agency’s deposit insurance fund will be $131 million, the agency said.

“Significant additional sources of liquidity and capital will be required for us to continue operations through 2009 and beyond,” Cape Fear Bank Corp., parent of the lender founded in 1998, said April 1 in a regulatory filing with the Securities and Exchange Commission.

Unsuccessful Efforts

Financial advisers were hired to help raise capital and “explore strategic alternatives” to ease liquidity and capital shortfalls, although “to date, those efforts have been unsuccessful,” the bank said in the filing.

The banking industry lost $32.1 billion from October through December, the first aggregate quarterly loss since 1990. The FDIC’s insurance fund, used to reimburse a bank’s customers as much as $250,000, tumbled 45 percent in the quarter. The fund fell to $18.9 billion after 25 lenders closed last year.

The FDIC plans to sell devalued assets on U.S. banks’ balance sheets as part the Obama administration’s efforts to restart lending. The public-private partnership unveiled March 23 is aimed at financing as much as $1 trillion in purchases of illiquid real-estate assets, using $100 billion remaining in a U.S. financial bailout package.

Participation Urged

Large and small banks are being encouraged to participate in the program, FDIC Chairman Sheila Bair said at an at an American Bankers Association meeting in Washington on April 1.

“I’m optimistic that it will help many banks clean their balance sheets and attract new private capital, and help give the government an exit strategy from their own capital investment program,” Bair said.

The agency, which is proposing a one-time fee on banks to replenish the deposit insurance fund, will divert profits from sales in the program to its reserves.

Congress is considering expanding the agency’s borrowing authority from the Treasury Department. The FDIC has said the levy of 20 cents per $100 of insured deposits may be cut by more than half if the credit line is expanded. The agency’s debt guarantee program is also expected to build revenue to cover the costs of bank failures and possibly reduce the proposed assessment.

Community lenders have said the one-time fee may significantly reduce 2009 earnings. Bair said the agency expects to make a final decision on the fees by late May.

The Washington-based FDIC insures deposits at 8,305 institutions with $13.9 trillion in assets. The 252 lenders on the FDIC’s “problem list” had assets of $159 billion at the end of the fourth quarter, about 1.1 percent of total assets, an increase from the $116 billion at the end of the third quarter, the agency said on Feb. 26. The agency does not release the names of the problem institutions.