Federal regulators said Wednesday that they had seized control of 20 Texas banks with $15 billion in assets, dismantling the state’s second-largest banking company amid massive withdrawals by nervous depositors.
Commercial bank subsidiaries of MCorp of Dallas were taken over Tuesday night and Wednesday morning. They reopened for business as the nationalized Deposit Insurance Bridge Bank with $300 million from the federal bank insurance fund.
“As far as the customers are concerned, it will be business as usual,” L. William Seidman, chairman of the Federal Deposit Insurance Corp., said at a news conference here. Depositors at 19 of the 20 institutions will have all of their funds protected, including accounts in excess of the $100,000 guaranteed under the federal banking insurance system. At the 20th bank, in Abilene, deposits were protected only to the $100,000 limit.
The size of the seized banks’ assets make this takeover the third largest in banking history, ranking behind only those of Continental Illinois of Chicago in 1984 and of First Republic, another Texas bank, last year. Continental Illinois had about $40 billion in assets and First Republic had $33.2 billion.
Five other MCorp subsidiary banks, all solvent, were left untouched by the action and remain under the holding company. In previous takeovers of big bank holding companies, all the subsidiaries were deemed insolvent and acquired.
$400 Million in Debt
MCorp has long been a troubled institution in search of a buyer able to provide badly need capital. Panic erupted among customers and depositors of the lead bank, MBank of Dallas, and among other banks in the chain, after MCorp said Monday that it planned to file for protection under the federal bankruptcy laws.
The holding company, which halted payment on more than $400 million in debt last year, sought the bankruptcy filing to prevent involuntary liquidation by three minor bondholders.
There was a steady drain of funds Monday and Tuesday at MBank in Dallas and at the smaller MBanks in other Texas cities, including Austin, Ft. Worth, Houston, Wichita Falls and Odessa.
“It became clear the bank was not going to be able to meet the demands of its depositors,” Comptroller of the Currency Robert Clarke said at the news conference, discussing MBank of Dallas. The loss of funds began on Monday and accelerated Tuesday. Clarke did not say how much had been withdrawn from the banks.
All individual customers were able to make withdrawals, in Dallas as well as in other cities. But the “downstream banks,” smaller institutions in the MCorp family that had placed large amounts of funds with the MBank in Dallas, were unable to withdraw funds. MBank of Dallas was unable to meet their demands, fell into insolvency, and the individual banks followed.
The situation became critical late Tuesday. At that point, the Federal Deposit Insurance Corp. decided that it could not keep MBank open as an independent institution, Seidman said. The Federal Reserve Board, which had been supplying funds to MBank Dallas, moved to demand repayment, in effect sealing the financial doom of MBank.
Offered for Sale
“We lend as long as we think a viable solution will come forth,” said William Taylor, staff director of banking supervision at the Fed. “There wasn’t any public purpose in lending,” he said, after it became clear that MBank was collapsing.
When the comptroller told the Fed that MCorp was not viable, “we called one loan at the Dallas bank,” Taylor told the news conference. He refused to say how much money was involved, other than to call it “substantial.”
The 15 seized banks--now collected as a single institution under federal control--will be offered for sale to private investors. The regulators “favor putting up the bridge bank for bids as rapidly as possible,” Seidman said.