The FDIC announced the closure of six more banks on Friday.  Greater Atlantic Bank based in Virginia, Benchmark of Illinois, AmTrust Bank of Ohio, The Tattnal Bank based in Georgia, First Security National Bank based in Georgia and The Buckhead Community Bank in Georgia were all declared insolvent by the FDIC.

These bank closures bring the total number of Georgia based banks closed in just 2009 to 30 banks.  Often banks that are teetering on the brink of disaster raise their deposit account rates, especially certificate of deposit rates, as one last effort to increase revenue and keep their doors open.

Three of the six banks that were closed on Friday offered some of the most competitive CD rates in Georgia just over the past six months.  In fact, the three Georgia based banks were regularly listed as having the top ten best CD rates in Georgia this year.  Weak banks that offer above average deposit rates is a problem the FDIC tries to restrict since it can often make the ensuing bank failure and transfer of ownership more costly.  In addition, the increased CD rates offered by the weaker banks puts competitive pressure on other banks in the region to raise their CD rates in order to avoid losing depositors.

In early November, the FDIC added revisions to Section 337.6 which covers the rules on restrictions of brokered deposits and deposit rate limits.  The rule specifically attempts to restrict the use of brokered deposits and limits rates paid on interest bearing deposits solicited by less than well-capitalized FDIC-insured institutions.  The interest bearing accounts in question are generally certificate of deposit rates and money market account rates.

The highlights of the rule states that financial institutions that are undercapitalized are not allowed to accept, renew, or roll over any brokered deposits and deposits solicited by less than well-capitalized institutions cannot significantly exceed the prevailing interest rates offered on products such as money market accounts and bank CDs in the applicable market area.

With 30 banks in Georgia being involuntarily closed this year, many of which offered the highest CD rates in Georgia, combined the FDIC clamping down on outlier or above normal CD rate offers being marketed by less than well capitalized banks there is certainly more pressure coming to bear down on bank CD rates in Georgia as compared to other regions. 

Note: Closure of The Buckhead Community Bank last week includes the branch offices under the following names; The Sandy Springs Community Bank, The Midtown Community Bank, The Alpharetta Community Bank, The Cobb Community Bank, Atlanta, The Forsyth Community Bank and The Hall Community Bank.

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