While not the same crowd here as Deadspin, it is an interesting side note to college fball fans that the CEO of Colonial was a MASSIVE donor to Auburn and especially their football program.

Sort of shows why the bank bailouts were a waste of money. Just like the real capitalists were saying: One bank fails, another one buys it. The only reason everything's being consolidated by big banks is because the big banks were the ones that failed (and were given bailout money).

I have one small, seldom-used account with Colonial, and let me tell you the girl at the branch I called today was downright cheery about the turn of events, sounding as if I was crazy to call out of concern. I guess that means she's still going to get her paycheck.

FDIC insured, blah blah blah, business as usual, blah blah blah.

Glad I don't have to apply for a mortgage anytime soon.

@korin43: Your comment sort of shows why your thoughts were a waste of letters.

Same old same old. EVERY Friday late afternoon since last year the Feds do this to troubled banks. They know most people are too stupid to notice they are playing the news cycle game to minimize publicity. Regardless, the recession is over: 2 of the Euro contries showed growth in the 2nd quarter. Time to party!

Photo reminds me of old photos of the John Hancock building in Boston before they figured out how to ensure plate glass windows stayed in.

Cecala said Colonial was a significant player in the sector of the business known as "mortgage warehouse" lending, which provides financing needed by mortgage brokers and non-bank lenders to make home loans.

The basic premise of this statement is that two groups that originate mortgages feed into warehouse lenders: mortgage brokers and "non-bank lenders".

I'm going to go out on a limb and say that we're probably better off without "non-bank lenders", although maybe I'm being dim.

As far as mortgage brokers, having known a few, whatever is left of them after the mortgage meltdown certainly don't depend on warehouse lending in order to make deals. Warehouse is just one of the sources of funding, and their stock-in-trade is finding more investors.

I'm also going to go out on a limb and exclude prime borrowers from the equation, because there will (IMHO) always be stiff competition for their business.

Does this mean that a mortgage broker might not be able to find investors for B-C-D (i.e. sub-prime) loans? Probably. Does that mean that B-C-D loans will go away? No, the big bank players will pick it up. Does it mean that B-C-D loans will be more expensive? Most assuredly, yes, big banks will want to make a profit after write-offs. Is that a bad thing? Given the causes of the meltdown, maybe not.

We're talking about yet another contraction, and potential price increases, in the type of market that caused the mess we're in now. The failure of a weak player in that market, even if they represented a huge share of that market, is a necessary correction to get us back on track.

{Keeping my flame-retardant suit on...}

@AdamBC: Nah. I thought a mad version of the game Tetris was in session.

@humphrmi:
I think you are probably spot on, exactly what I thought about the "non-bank lenders" part. Although, I believe, a lot of that bunded mortgage crap (CDO's I think) sold on the street was also put together by banks. How about having lenders keep all the mortgages they originate?

Well, now that I have agreed with you, you will definately get flamed!

@humphrmi: Having worked in a large investment bank watching over the billions of dollars in warehouse lines, there is a 'need' for these facilities. That is to say that not every lender wants to have deposits to manage so that they have the money to lend, sometimes it's easier to borrow money from an investment bank at one rate and lend it out at a higher rate.

I'm not saying it's a great system, but I can see why it was so popular up until the crash. (Since then the investment banks have been eating billions in losses on these lines, so it's not likely they'll be a viable funding source again any time soon.)

@AdamBC: I'm with you on this, and if it's simply a matter of need, the remaining players will step in and take the place of the failed bank. Which means it will all boil down to costs - will the players who step in charge more for loans? Undoubtedly. Should people who can only get financing via warehouse financing pay more? In light of recent events, probably.

{philosophical rant:} It comes down to a matter of entitlement. For years, borrowers felt that they were entitled to a house regardless of their ability to pay, and the implication there is that banks should carry losses indefinitely in order to fund that entitlement. But no, banks are in business to make money, and if a weak player can't support the market at the current price levels, then that player will fail and prices will go up. And some people may no longer be "entitled" to buy a house.

Boo-hoo.

{Flame-retardant-suit-still-on}

@wvFrugan:
They close banks on Fridays because it takes a weekend's worth of work to transfer all the account to the new bank, etc, etc. It isn't some sort of conspiracy, it's simple practicality.

Source: [www.npr.org]

Colonial expanded into fast-growing areas such as Florida, lending builders money to keep the housing market booming.

Even when the housing market started to collapse, Colonial kept buying Florida banks at over book value to gain access to markets that "had" been hot.

Though the bank had met the criteria for being considered well capitalized, the rules allowed it to ignore declines in market value of many loans and other assets in computing how much capital they have.

Mix with short sellers and a bad economy and PRESTO, no more bank.

Ha!! Thank you for showing me a picture of the Boston John Hancock Tower in its infamous Plywood Palace days. No idea what it had to do with either Colonial Bank or BB&N though.

@krom: Doh, I meant BB&T not BB&N. Geek check.

@krom: Oh. Wow. I was so wrong.

@AdamBC:

The old Plywood Tower. Its been a while since I saw The History Channel episode of it on Engineering Disasters.

FWIW, I've been a BB&T customer for years and find they are very good to work with.

@Crim Law Geek:
Before I call you out on this, can you show me where in the reference you provide it states such as being the reason? Or, are you just drawing your own conclusion based on what you think is most practical to do?

i'm a bit surprised this happened now - the regulators typically take a hiatus over the summer. too tough to liquidate banks what with everyone on vacation. from what i hear, the FDIC is gearing up for some major actions this fall, at least in one section of the country. start watching the fireworks sometime in mid-september.

I have to disagree with the non-bank lenders. I am in the process of buying my first home. Before I went under contract I started out with a local credit union and had the worst possible customer service experience. I then decided to go to a bank only to find out they were interested in "creative" financing to try and get me to buy into a new development they were financing. A bit suspicious to me. I went under contract with no legitimate loan in site… I went to a non-bank lender (skeptical at first), though they have been in business over 80 years. The easiest, no bull, straight to the point transaction I have ever done.

@mac-phisto: Oooh, you almost fished me in on that one, until I looked at your commenter handle.

@wvFrugan: Hey just because he isn't pistol-whipping someone for talking to him at the cash register and just because he doesn't agree with you doesn't mean you have to be a total ass about it. I agree with him.

You guys do realize that during the great depression, most of the small banks in the US failed. And the few largest banks around, which are in fact pretty much the same largest banks today, eventually bought them all up.

A lot of competition shrunk down to just a few of the most powerful players.

Also the same rumors of collusion with uncanny ties to the federal reserve, as it is a private company. It's largest shareholders are the respective largest banks also was abound. Similar to Goldman Sachs today. Before it was JP Morgan that was most suspect.

It may or may not mean anything. But history certainly does rhyme.

@wvFrugan: It does not come out and say "this is why we do it on weekends" but they do offer this little tidbit:

"While the agents are sorting all this out, they can't have customers going online and moving money around. They need to shut down the bank's computers for a short while, maybe an hour. "Things started happening very quickly and with what seemed to be a lot of precision," Moody says."

It might not be exactly as Crim Law Geek said, but I am sure that there is a better reason than farming the media. That said, you can't just quote a source, you are allowed to draw conclusions based on it.

@wvFrugan:
@wvFrugan:

Well, they use about half of the failed bank's employees, and plenty (in this case, 100) of the receiving bank's employees, to help transfer assets. You also need to swarm 80 FDIC agents into a bank and transfer cash and the contents of deposit boxes. The article uses the phrase "Around the clock for three days".

That'd suck to have an account there if you shut this bank down on a Tuesday.

Now pretend you're a business owner. Do you want to have no access to a bank for three business days?

So yeah, you do it on a Friday night.

@wvFrugan:

@wvFrugan:

Well, they use about half of the failed bank's employees, and plenty (in this case, 100) of the receiving bank's employees, to help transfer assets. You also need to swarm 80 FDIC agents into a bank and transfer cash and the contents of deposit boxes. The article uses the phrase "Around the clock for three days".

That'd suck to have an account there if you shut this bank down on a Tuesday.

Now pretend you're a business owner. Do you want to have no access to a bank for three business days?

So yeah, you do it on a Friday night.

@humphrmi: you know, i don't have a whole lot of experience in the warehouse lending department, but i know even banks utilize them to keep short-term loans off the books. one reason they may do this is to provide access to products that don't meet the bank's internal lending requirements (say they don't offer jumbos internally, but they have a relationship w/ a secondary market buyer).

now that may be an internal process (AA Commercial Bank extending a warehouse line to AA Mortgage Co., both as wholly-owned subsidiaries of AA BHC) or it may be that the mortgage division has multiple lines or seeks external sources, but i know it's not restricted to alternative lenders.

regardless, i think you're right - someone will probably fill the void. the only issue i can see with that is a lack of liquidity across the marketplace. regardless of what happens, i think we can all agree that we're most likely going to see another bump in rates.

href="#c14790924">Blueskylaw: This honestly surprised me because last time I checked, it's been about a year, they were rated better than the bigger banks. I didn't expect them to fail.

@Crim Law Geek: It has always seemed convenient that when they are closing the bank, the stock market is closed and thus by Monday, everything is under control, circumventing panic.

@wvFrugan: I remember hearing the same thing somewhere. Maybe on NPR. They don't tell the bank they are coming. The FDIC is very pragmatic about such endeavors.

@humphrmi: I agree, and I'd go further.
We need to go back to having banks having to keep mortgages on their books until they're paid off.
It's the simplest, most efficient way to ensure that our financial system properly balances default risk with revenue potential.

@humphrmi: No need for asbestos underwear.
Although, I wouldn't "blame" over-optimistic borrowers (which isn't to say they're not liable). Borrowers ALWAYS ask for more than they can reasonably expect. They're the Yang. Banks, until recently, have ALWAYS been the ones telling the kids, "Nope - you get half until you clean your room and mow the lawn." They're the Yin.
The problem was the banks make more money the more they're leveraged and the more they loan, thus pleasing Wall Street. Once they were able to sweep the loans off their books (certified by AIG and the rating agencies as AAA), they could loan more, "earn" more, and please Wall Street more.
It wasn't borrowers - they've ALWAYS asked for more. 3/4 of what banks have done since Biblical times was to say No, or say, Less. That is what changed in the last decade, and that is what we need to return to.

@Blueskylaw: I had thought the tower was one of the Atlanta office buildings that got hit by that tornado last year

@wvFrugan: Deverbative is correct. Less publicity = less panic. Even still, it made CNN, Headline News, Bloomberg, etc.

The FDIC is not the NSA or the Pentagon. This is what they were set up to do. Tin foil hat off, please.

@H3ion: Agreed. Conservative bank with seemingly good lending standards. Never once saw any "got a part-time student job? Get a mortgage!" type promotions.