Community Security Bank, based in New Prague, Minnesota was closed by government regulators Friday, the Federal Deposit Insurance Corp. said.
It brought the total number of bank failures in 2010 to 101.
It also continues a pattern. Small, regional banks continue to fail, even as conditions improve for many of the nation’s largest banks.
Regional lenders continue to suffer from mounting loan losses, particularly in areas like commercial real estate.
And, even the money extended to these lenders through the much-maligned Troubled Asset Resolution Program (TARP) is being cited as a reason for their failure.
According to a report released this month from a congressional watchdog, the Treasury Department’s bailout program was designed with Wall Street megabanks in mind. The “one-size-fits-all” program may actually be hurting small banks that are struggling to repay the money or even deliver quarterly dividend payments, the report says.
The main bank bailout program anticipated banks springing back from the crisis and raising fresh funds to repay the government, the report says.
That’s exactly what happened to most of the big banks that took the most bailout money. Yet small banks continue to struggle, dragged down by souring loans for commercial real estate and high unemployment. Hundreds more small banks are expected to fail by the end of next year.
The 690 small banks that took bailout money are even worse off, according to a report Wednesday from the Congressional Oversight Panel, which monitors the $700 billion financial bailout. Already, one in seven has failed to pay a quarterly dividend due to Treasury. They can’t afford the payments, which will nearly double in 2013.
Treasury spokesman Mark Paustenbach disputed the findings, saying in a statement that the bailouts helped many of the banks “weather the storm and continue to extend credit in the economy.”
The FDIC expects the wave of bank failures that started in 2008 to peak sometime this year. Lending activity has picked up in some areas and many troubled firms have found new sources of capital.
FDIC spokesman Andrew Gray said the agency expects the number of failed banks to exceed last year’s total of 140, though he added that failures this year will not approach the historic levels seen during the savings and loan crisis. In 1989, a record 534 banks were closed by regulators.
Still, banks have been failing at a rapid pace this year. At this time in 2009, regulators had closed a total of 57 banks.
