The Closing of SCB Bank

Last Friday, the Federal Deposit Insurance Corp. (FDIC) was named receiver by the Office of the Comptroller of the Currency, following the failure of SCB Bank in Shelbyville. The bank reopened on Saturday morning under the name of the bank that purchased its deposits and most loans, First Merchants Bank, NA, Muncie. As with the other two Indiana-based bank failures within the past three years, no depositor lost a cent.

No insured depositor has ever lost a cent in any U.S. bank failure, since the FDIC was established in 1933. The FDIC was created in response to the Great Depression, specifically to protect depositors of banks and thrifts in the event of a bank or thrift failure, and it has succeeded in its mission. Perhaps no period in history since the Great Depression has been as economically devastating as that of the past four and a half years, but the FDIC continues to perform its duties without wavering.

More remarkable still, this protection has occurred without one cent of funding from taxpayers. FDIC operations, and any losses that occur when a bank or thrift fails, are funded 100 percent by the insured banks and thrifts that pay premiums into the FDIC. Even during the challenging savings and loan crisis of the late 1980s and early 1990s, not one cent from taxpayers was ever used. Instead, the FDIC (and its thrift predecessor, the FSLIC) borrowed funds on the capital markets using the implied full faith and backing of the United States; those funds have been paid back in full by the bank and thrift industry.

The failure of any company is sad and humbling, but the failure of a bank or thrift is especially disheartening, because so many people and businesses in the community are affected. The business procedure itself of transitioning the deposits of a failed institution has been worked into a smooth science by the banking industry and the FDIC. Yet the emotional toll remains huge for owners, employees, customers and the community at large.

Many in the United States want to blame banks for the economic turmoil of the past few years. The truth is that very few banks were the root cause. In fact community banks, such as SCB Bank in Shelbyville, are themselves victims, much as many American families have been victims of this recession. Despite last Friday’s bank failure, however, there are many positive indications that we are nearing the end of the current economic slump, and that better days lie ahead.

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