Federal Deposit Insurance Corporation Shuts Down Iowa Bank Due to Loan Losses
The Federal Deposit Insurance Corporation (FDIC) has closed Citizens Bank in Sac City, Iowa after uncovering substantial loan losses on its balance sheet. To protect depositors, the FDIC has transferred all deposits to Iowa Trust & Savings Bank. The two physical locations of Citizens Bank will reopen under the new name on Monday. Established in 1929, this is the first bank closure in Iowa since 2011 and marks the fifth bank failure in the US this year.
Unspecified Loan Losses Lead to Insolvency
During a joint examination, regulators identified significant loan losses at Citizens Bank that had not been previously reported by the bank. These losses rendered the bank insolvent. While officials have not disclosed which loans were responsible for the losses, the banking industry as a whole has struggled with underwater bond portfolios throughout 2023 due to aggressive rate hikes by the Federal Reserve.
Industry Faces $650 Billion in Unrealized Losses
A report from Moody’s reveals that the banking industry is currently grappling with approximately $650 billion in unrealized losses that do not need to be marked at market value. This issue gained attention earlier this year when Silicon Valley Bank experienced a run on the bank after announcing a $1.8 billion loss from selling part of its underwater bond portfolio. The closure of Citizens Bank highlights the challenges faced by banks in managing their loan portfolios.
Hot Take: Banking Industry Struggles with Loan Losses
The closure of Citizens Bank due to significant loan losses serves as a reminder of the challenges faced by banks in managing their loan portfolios. As interest rates rise, banks are confronted with underwater bond portfolios and unrealized losses. The closure of five banks this year, including Citizens Bank, underscores the importance of rigorous risk management practices and loan diversification. As the banking industry continues to navigate these challenges, it is crucial for financial institutions to remain vigilant and implement strategies to mitigate loan losses and protect their depositors.
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