Lessons Learned

Sadly, last Friday Indiana suffered its second bank failure since the onset of the financial crisis in 2007. Integra Bank, NA, headquartered in Evansville, was placed in the hands of the Federal Deposit Insurance Corp. (FDIC) by the Office of the Comptroller of the Currency, the primary regulator of Integra Bank, NA. FDIC promptly brokered a sale of all liabilities at a 1 percent premium, plus most assets, with a loss-sharing agreement to Old National Bank, also headquartered in Evansville. Because the liabilities—mostly deposits—brought a premium, no customer lost a penny. And although the FDIC estimates that its costs will come to $170 million, no taxpayer dollars will be used. All premiums used to operate the FDIC and to cover losses on failed institutions are paid by the insured institutions.

In both this failure and the 2008 failure of Irwin Union Bank and Trust of Columbus, Ind., bank management had expanded into geographic areas and into products that they did not fully understand. In Indiana, banks that continue to provide products and services that they have expertise in, to customers they know, continue to do well.

There is nothing wrong with developing new products and services or in expanding the bank’s marketplace. However, the first lesson that all bankers should learn from these failures is to be sure that they have a comprehensive understanding of those products and services and/or the needs of the customers in those new markets.

The second lesson for bank directors is to deal promptly with issues at their earliest opportunity. In the case of Integra Bank, NA, by the time competent management was brought in, it was too late.

Indiana is blessed with outstanding bankers and directors, and our innate conservatism has proven to be the proper course for the long-term once again. But it never hurts to step back at moments like this to re-evaluate past decisions and to review actions that may be required to best serve bank customers and shareholders.

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