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Archive for Sunday, July 29, 2001

Regulators order Chicago thrift closed

Firm, which specialized in high-risk lending, will cost FDIC $500 million

July 29, 2001

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— A Chicago-area thrift closed Friday by federal regulators specialized in high-risk consumer lending, a fast-growing business that also brought big losses to two other institutions in recent years.

The failure of Superior Bank, half-owned by the multibillionaire Pritzker family, threw a new spotlight on so-called subprime lending the practice of making high-interest mortgage, auto and other loans to consumers with troubled credit histories who cannot qualify for better rates.

Those borrowers often run into financial trouble in a slumping economy and may be unable to repay the loans, bringing losses for the bank or thrift.

Superior Bank was closed Friday by the federal Office of Thrift Supervision and the Federal Deposit Insurance Corp. was appointed as receiver.

The failure is expected to cost the federal insurance fund an estimated $500 million, according to banking experts who have reviewed the thrift's operations. That would make it one of the costliest failures.

Subprime lending also was implicated in the failures of First National Bank of Keystone, W.Va., and BestBank of Boulder, Colo., whose collapses contributed in 1999 to the biggest annual loss to the federal insurance fund since the regional bank crises of the early 1990s.

The Keystone bank grew by paying high interest rates to attract capital from across the country; its $800 million estimated cost to the insurance fund made it one of the most expensive failures.

BestBank sold high-interest credit cards as part of a travel-club membership to consumers with poor credit records. Its failure drained some $232 million from the fund, which backs each account up to $100,000.

Superior will open for business Monday morning as Superior Federal FSB, a full-service savings bank under a new charter, the Office of Thrift Supervision said. The agency said all depositors "will have immediate access to their insured funds."

Superior was only the fourth financial institution closed by the federal thrift agency in the past five years. The nation's thrifts became financially strong after the savings and loan crisis of the late 1980s.

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