First Heritage Bank N.A., Newport Beach, CA, became one of three banks to fall into the hands of the FDIC in three weeks:

On July 25 2008, First Heritage Bank N.A., Newport Beach, CA was closed by the Office of the Comptroller of the Currency (OCC). Subsequently, the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.

No advance notice was given to the public when the FDIC took down IndyMac Bancorp either after it’s highly publicized distresses because apparently the agency had no advance notice to itself.

Each quarter, the FDIC discloses how many banks and thrifts are on its problem list. It does not name which institutions make the list because if it did, depositors would yank out their money and they would almost surely fail.

In May, the FDIC reported that for the quarter ended March 31, the list had 90 companies with $26.3 billion in combined assets.

IndyMac, which by itself had $32 billion in assets at the end of March, was obviously not on the list, a fact confirmed by the FDIC after its failure. The FDIC says it was added in June.

The FDICs web page explains that the “assuming institution” is Mutual of Omaha Bank, Omaha, Nebraska, and has all the pertinent information and assurances, such as “All deposit accounts will be available as usual”. Very nice, but….

IndyMac was the third-largest bank failure in US history and failed to make the FDIC problem list, so what chance did First Heritage have? Of course, First Heritage and IndyMac are orders of magnitude apart in their effect on the industry. Nonetheless, the publicity of IndyMac’s various and serious problems led many of its depositors to stand in line for hours waiting to withdraw funds from various branches across Southern California BEFORE regulators moved in.

One wonders what regulators actually regulate. While you are wondering, ponder this as well: IndyMac’s receivership is expected to deplete between $4B and $8B from the FDIC’s industry-funded insurance fund of about $53B. In case you don’t like doing arithmetic in your head that’s between 8% and 15% gone already, while WaMu is just waiting.

How assured are you about that FDIC insurance now?

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