Your bank failed? Your CD yields may be hacked

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Depositors of the two Inland Empire banks that failed on Friday -- Vineyard Bank and Temecula Valley Bank -- need to be prepared for possible interest-rate deflation.

Under Federal Deposit Insurance Corp. rules, when a failed bank is sold the acquiring bank isn’t obligated to stick with the failed institution’s deposit rates, such as on savings certificates.

The buyer has the right to arbitrarily reduce deposit rates. The only stipulation is that depositors must be given the right to withdraw their money in full -- with interest earned to that point and without an early-withdrawal penalty -- if they don’t want to accept new, lower rates.

Vineyard, with $1.6 billion in deposits, was bought by California Bank & Trust of San Diego, a unit of Zions Bancorp. After CB&T took over the failed Alliance Bank of Culver City in February it notified Alliance’s customers that it was cutting deposit yields across the board.

A CB&T spokeswoman said Monday that the bank hadn’t made a decision yet about Vineyard’s deposit rates.

But Vineyard had been offering above-average yields on certificates of deposit, trying to pull in cash to stay afloat. Early this month it was quoting 1.92% on a one-year CD, compared with a national average of about 1.4%, according rate-tracker Informa Research Services.

Temecula Valley Bank, with $1.3 billion in deposits, was bought by First Citizens Bank and Trust of Raleigh, N.C. First Citizens spokeswoman Barbara Thompson said the bank was ‘looking at the rates’ that Temecula Valley was paying but hadn’t made a decision about changing them.

-- Tom Petruno