Seized Texas Bank Chain Is 3rd-Costliest Failure in U.S.

Banking regulators said late Friday that they closed 20 insolvent banks affiliated with First City Bancorporation of Texas in what is expected to be the nation’s third-costliest bank bailout.

The Federal Deposit Insurance Corp. has established “bridge banks” to assume deposits and other assets and liabilities of First City Houston and First City Dallas, whose assets total $3.8 billion, and the 18 other banks.

The banks are “insolvent,” said Andrew Hove Jr., the acting chairman of the FDIC.

Operating under the bridge-bank arrangement, subsidiaries of the Houston-based First City will open under FDIC supervision during their regular business hours.

“The FDIC’s action is particularly significant because it is the second time First City Bancorporation has been closed at a high cost to the fund,” said Sen. Donald W. Riegle Jr. (D-Mich.), chairman of the Senate Banking Committee.

The FDIC has already plowed almost $1 billion into the First City banking system since 1988 in an effort to shore up the ailing bank.

First City had been racing to meet tougher new federal regulatory standards, which are to take effect Dec. 19. Those tougher standards have become an issue in the presidential campaign, with independent candidate Ross Perot alleging that the country could be facing a banking crisis that would rival the savings and loan bailout.

Regulators estimated that the new action will cost the federal government another $500 million--making it, by one accounting, the third-costliest banking bailout in history.

So far this year 104 banks, with assets exceeding $36 billion, have been closed.

As of June 30, the assets of First City’s 20 banks totaled $8.8 billion and deposits totaled $7.9 billion in about 900,000 accounts, the FDIC said.

The assets of $8.8 billion would make First City the eighth-largest bank failure in U.S. history. The largest bank failure was the collapse of Continental Illinois National Bank in 1984, which had $33.6 billion in assets.

Hove said the regulatory agency expected significant losses to depositors at four First City banks--the banks in Houston, Dallas, Austin and San Antonio.

The FDIC will guarantee only 80% of deposits that exceed the $100,000 insurance limit in those banks, Hove said. However the FDIC expects “no significant losses” to the FDIC from the remaining 16 banks, whose depositors will be “fully protected.”

Federal regulators denied any political influence in the timing of the closure, which came just four days before the presidential election.

“We determined the lead bank, First City of Houston, was insolvent. When we find banks are insolvent, we close them,” Acting Comptroller Stephen R. Steinbrink said.