NEW YORK - August 1, 2008 - The Federal Deposit Insurance Corporation revealed on Friday that it had issued warnings to four small U.S. banks that lacked sufficient reserves to cover potential loan losses.
The cease-and-desist orders issued in June said the four banks needed to raise more capital, expand their loss allowances and better oversee and diversify their loan portfolios. A fifth bank was cited for violating consumer protection laws.
Losses on mortgages and other loans have helped bring down eight U.S. banks this year, including one small Florida institution on Friday. Last month, IndyMac, a California lender with $32bn in assets, became one of the largest banks to go under in U.S. history. It filed for Chapter 7 bankruptcy protection on Friday.
The banks receiving cease-and-desist orders in June were MetroPacific Bank in Irvine, California; Bank Haven in Haven, Kansas; Clarkston State Bank in Clarkston, Michigan; and Hastings State Bank in Hastings, Nebraska.
The FDIC instructed the banks to reevaluate their allowances for potential losses. MetroPacific in California was also told to stop issuing credit “for speculative construction and land development purposes.”
The fifth bank - Columbus Bank and Trust in Columbus, Georgia - received a cease-and-desist order because its credit card program violated consumer protection laws.