Another massive U.S. bank has now collapsed, with “fraud” being the main blame for the financial institution’s failures.
The First National Bank of Lindsay has reportedly failed due to suspected fraudulent activities, marking the second U.S. bank collapse this year.
The Federal Deposit Insurance Corporation (FDIC) anticipates a hit of approximately $43 million to its Deposit Insurance Fund (DIF).
On Friday, the Office of the Comptroller of the Currency (OCC) closed the Lindsay, Oklahoma-based bank and appointed the FDIC as the receiver.
First Bank & Trust Co. from Duncan, Oklahoma, agreed to acquire the bank’s insured deposits, as announced by the FDIC.
The OCC intervened after discovering misleading bank records and indications of fraud that led to a significant depletion of the bank’s capital.
The agency noted that the First National Bank of Lindsay was in “an unsafe or unsound condition to transact business.”
With total assets of $107.8 million and total deposits of $97.5 million, the bank had approximately $7.1 million in deposits that exceeded FDIC insurance limits.
This amount may change as the FDIC collects more information from customers.
To assist depositors, the FDIC plans to make 50% of uninsured funds available on Monday, with the possibility of increasing that amount as assets from the failed bank are sold.
First Bank & Trust will assume the insured deposits for a 6.67% premium and will purchase about $20 million of the failed bank’s assets.
Federal regulators will keep the remaining assets for future disposition.
The only office of the First National Bank of Lindsay will reopen on Monday as a branch of First Bank & Trust.
Fortunately, customers of the failed bank will automatically become depositors of the acquiring bank, and their insured deposits will continue to be protected by the FDIC.
All First National Bank customers will have access to their insured deposits, checks will still be processed, and loan payments should continue as before.
The FDIC estimates that the failure will cost its Deposit Insurance Fund about $43 million, although this figure may change as assets are liquidated.
The OCC indicated that the alleged fraud contributed to the bank’s collapse and the associated costs to the DIF.
Additionally, the OCC is referring the case to the Justice Department, which has various tools to hold individuals accountable for any criminal acts, focusing on the victims involved.
The issues surrounding the First National Bank of Lindsay date back to 2006 and 2007 when the OCC issued three orders, including one that barred the bank’s former president, E. Ray Murray, from the banking industry.
While customer losses may be minimal, the reputational damage is significant.
Carl Goss, a partner at the law firm Hunton Andrews Kurth, commented that shareholders would see their equity wiped out, and although employees may continue working for now, job losses could occur once the transition is complete.
Management is likely to face job losses and may be held criminally or civilly liable, depending on the investigation’s findings.
The public will gain a clearer understanding once the FDIC’s Office of Inspector General reviews the situation and releases its findings, a process expected to take about six months.
Last week, the FDIC projected that the reserve ratio for the DIF would reach the required minimum level by 2026, ahead of a 2028 deadline.
The First National Bank of Lindsay is the second bank failure in the U.S. this year, following the collapse of Philadelphia-based Republic First Bank in April, which concluded a prolonged internal conflict within the lender’s board.
In total, five banks have failed in 2023, including Silicon Valley Bank, Signature Bank, and First Republic.
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