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Regulators have shut down Atlanta based bank in Georgia – it being the 95th bank to suffer this fate in the current year. In the forthcoming months more banks are expected to suffer the same fate as defaults are increasing in the commercial mortgage sector. These bank failures could put at risk the insurance deposit funds that have already reached its lowest level in the last two decades.

The Georgian Bank with nearly $2 billion in assets and $2 billion as deposits (as on 24th July) was taken over by the Federal Deposit Insurance Corporation. The assets and the deposits were assumed by the First Citizens Bank and Trust of Columbia. As a result all the five branches of the Georgian bank will reopen under the banner of First Citizens Bank.

The FDIC and First Citizens Bank also agreed to divide the losses amongst themselves – approximately totaling to $2 billion inclusive of loans and various assets.

The failure of the Georgian Bank will cost the federal deposit insurance fund an approximate amount of $892 million. The continuous incoming wave of failing banks has eaten into the funds of the federal insurance to an alarming extent. If this pace continues then it will be in the red before this year draws to a close. By the close of June 2009 the funds had dropped by 20% to touch $10.4 billion. It is the lowest level since 1992. That was the peak time of the savings and loan catastrophe. According to FDIC calculations till 2013 the bank failures will cost it $70 billion.

Recently the chairperson of FDIC said that she is “considering all options, including borrowing from Treasury.” One of the most costly and never before experimented with option that it is thinking of using to boost up its falling funds is to borrow billions from healthy banks and fixing a special fee on the banking sector or drawing into the credit line of the agency with the Treasury amounting to $500 billion.

Another alternative is to make the banks pay their usual insurance fees ahead of scheduled time. But John Dugan, Comptroller of the Currency said he was “very concerned” about the impact of such an advance levy on the banking industry that is already strained to its limits.

The FDIC is totally backed by the government and this means the guaranteeing of the money of the depositors – up to $250,000 for each account.

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