This afternoon Federal banking authorities seized Silverton Bank, the Atlanta-based bank for banks. The troubled bank had already been subject to government censure, prohibited from paying dividends, paying interest on its debt or issuing new debt without prior consent from the Federal Reserve.
The seizure is bad news for Silverton’s shareholder base, comprised entirely of its customer banks. More than 1,500 banks across the country are Silverton customers, and 400 hundred of those are shareholders. The bank provides banks, especially community banks, with credit lines and other back-office services. It is the largest bankers’ bank in the country.
Silverton had more than $4.1 billion in assets, making it the fifth largest bank to fail since the financial crisis began last year. The FDIC says the seizure could require as much as $1.3 billion from its insurance fund.
There had some question about whether or not Silverton was too big to fail or too connected to fail. Some Georgia bankers had argued that its collapse could take at least 8 to 12 banks down with it.
Silverton killed itself by drinking too much housing boom kool-aid. It created a huge portfolio of residential real estate construction projects. Some of these loans were syndicated out to smaller shareholder banks. But when the market for the loans collapsed in 2007, it was stuck holding a bunch of debt that quickly went toxic.
BANK DEATH COUNT FOR 2009: 30.