Banking Crisis Hits The Coast

Lost in the debate over the banking crisis is the fact that it doesn’t simply involve the nation’s biggest banks such as Charlotte-based Bank of America. Smaller banks also are failing; in fact, since the start of the year, the Federal Deposit Insurance Corp. has assumed control of 23 failed banks across the country.

On Friday afternoon, Wilmington-based Cape Fear Bank became failed bank number 22, as well as  the first North Carolina bank to fail since 1992. With eight branches and a total of $493 million in assets and $403 million in deposits, Cape Fear hardly was the largest bank. Nevertheless, it became entangled in the speculative housing bubble and made many questionable loans, so when that bubble burst, the bank found that its assets (i.e. outstanding loans) were worth far less than the value of its debts (i.e. customer deposits). Unable to raise additional capital, the bank found itself insolvent.

Thanks to the FDIC, the bank’s insured depositors won’t lose their money. The FDIC took control of the bank Friday afternoon and transferred all deposit accounts to First Federal Savings and Loan Association in Charleston, SC.  This morning, Cape Fear Bank’s eight branches reopened for business as usual, just as First Federal branches.

The closing of Cape Fear points to the importance of good government regulation. Both state regulators and the FDIC had been monitoring the bank’s health, and when it became insolvent, they moved rapidly to protect depositors and minimize the costs to the taxpayers. Over a weekend, federal employees cleaned up a bank and had it ready to open by the next business day.  (For a profile of the FDIC process, listen to this piece from the radio show This American Life.)

With more of this kind of quality regulation, it is unlikely that the financial crisis would have happened in the first place.

Check Also

Exceptional, Just Not In a Good Way

Conservative commentators frequently claim that the structure of ...

Top Stories from NCPW

  • News
  • Commentary

Late March is prime spring planting season in North Carolina, and this year, as part of his personal [...]

The following collection of numbers comes from the 2018 North Carolina Child Health Report Card comp [...]

One-stop early voting for North Carolina’s May 8 primary election is a little over a month away, but [...]

A lone Southern yellow pine tree has stood in the middle of Marvin Winstead’s Nash County field for [...]

Ordinary Americans – those of us not allowed to know the secrets of high-level espionage work – at t [...]

Though they are sometimes dressed up in prettified language about “freedom” and “choice” and “market [...]

The post The apple doesn’t fall far from the tree appeared first on NC Policy Watch. [...]

In the aftermath of recent action by state lawmakers to back down from their previously enacted unfu [...]