Risk

Chicago Bank Largest to Fail in 2014

The bank's troubled-asset ratio had hit 327% before the FDIC shut it down.
Katie Kuehner-HebertOctober 31, 2014
Chicago Bank Largest to Fail in 2014

The National Republic Bank of Chicago has become the country’s 16th — and largest — bank to fail this year, and industry observers wondered what took regulators so long to close it.

The Office of the Comptroller of the Currency on Friday closed the $954.4 million-asset National Republic, appointing the Federal Deposit Insurance Corp. as receiver, according to a FDIC press release.

The FDIC also announced it had entered into a purchase and assumption agreement with State Bank of Texas in Dallas to assume all of National Republic’s $915.3 million in deposits and buy roughly $626.1 million of the failed bank’s assets. The FDIC said it would retain the remaining assets for later disposition. National Republic’s two branches reopened on Monday as branches of State Bank of Texas.

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According to the website ProblemBankList.com, National Republic was the largest Indian-American owned bank in the country, lending mainly to Indian-American owners of hotels, gas stations, and motels – approving loans that “no other banks would touch.”

While the bank’s level of troubled assets had been “soaring” since late 2012, according to ProblemBankList.com, the OCC waited until July to issue a prompt corrective action directive for National Republic after its troubled asset ratio reached 327%. The regulator ordered the bank to replace its chief executive and other senior officers and directors, modify its lending practices and raise capital or risk seizure, among other things, according to the OCC directive.

ProblemBankList.com said the reason why regulators took so long to close the zombie bank was “unknown,” but followed a pattern of waiting until all efforts to raise capital had long been exhausted before seizure. The FDIC’s Oct. 24 press release announcing National Republic’s closure stated that the estimated cost to the Deposit Insurance Fund (DIF) would be $111.6 million.

“Compared to other alternatives, State Bank of Texas’ acquisition was the least costly resolution for the FDIC’s DIF,” according to FDIC’s press release.

National Republic was the fifth failed bank this year in Illinois, and the fourth of out of five Indian-American owned banks in Illinois to have failed since the 2008 financial crisis, according to ProblemBankList.com.