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FDIC Creates Bridge Bank
By Tim Holland
The Federal Deposit Insurance Corporation (FDIC) announced the creation of a bridge bank to take over the operations of Silverton Bank, National Association, Atlanta, GA. Silverton Bank was closed by the Office of the Controller of the Currency, the regulator of national banks, on Friday, May 1, 2009 and appointed the FDIC as receiver. Silverton Bank did not deal directly with consumers but served as a correspondent bank for smaller banks around the country. The new bank will be called Silverton Bridge Bank.
Silverton Bank’s failure continues to demonstrate the weakness in the country’s financial structure. The bank’s primary function was to provide correspondent banking services to smaller independent banks around the country and did not deal directly with consumers. It had 1,400 client banks in 44 states and maintained six regional offices. Silverton, at the time of its closing, had assets of $4.1 billion and $3.3 billion in deposits (all of which will be covered by FDIC insurance).
The failed bank was one of a number of specialized financial institutions that was created to fill a gap that emerged with the ending of geographic restrictions on banking in the United States. In the past, small state and regional banks relied in banks such as Bankers Trust Company (taken over by Deutsche Bank), Manufacturers Hanover Trust Company (taken over by Chemical Bank New York, which also acquired Chase Bank) and Irving Trust Company (taken over by Bank of New York) all of which, in addition to their own business lines, specialized in providing correspondent banking services. A correspondent bank services as a backup for a local bank in providing the services that it wishes to provide to its customers but does not wish to or have the expertise or size to provide on its own. Typical services would be credit card operations, the buying and selling of loan participations, international transactions, etc.
With banks like Chase, Bank of America, Citigroup and Wells Fargo operating on a national scale, local and regional banks saw the large megabanks as competitors rather than the partners they once were and went looking for alternatives. Silverton Bank was created to fill the gap that developed.
Permitting Silverton Bank to fail would have created greater instability for an already weak local and regional banking system, where virtually all of the bank failures have occurred. The FDIC’s action in assuming the operations of the bank as Silverton Bridge Bank will enable it to have a vehicle to provide additional support for the 1,400 banks that were the failed banks customers.
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on May 05 2009 13:18:00
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