IBB closing ends chapter in bankers’ bank movement
Independent Bankers’ Bank of Springfield, Ill., was closed Friday (Dec. 18), ending a chapter in the bankers’ bank movement. IBB was a good friend to NorthWestern Financial Review magazine and we are sorry to see this happen. IBB is the only bankers’ bank to close since the first bankers’ bank was founded in 1975; nine-teen bankers’ banks remain in operation, including six serving the Upper Midwest.
The bank’s troubles became known when it entered into a written agreement with the Federal Resrve Bank of Chicago and the Illinois Department of Financial and Professional Regulation’s Division of Banking on June 30. Many people held out hope that the bank would raise the capital to solve its problems. At the annual convention of the Community Bankers Association of Illinois Sept. 24-26, IBB President John Jones hosted a special meeting to update community bankers on the situation and solicit additional support.
Bob Wingert, president of the Community Bankers Association of Illinois, used his speech at the convention to urge members to support IBB. Wingert and a group of CBAI bankers helped to form the bankers’ bank so that community banks could have access to correspondent services from a financial institution that would never compete against them with other services.
“Twenty-five years ago, the CBAI formed a committee to study the feasibility of forming a bankers’ bank,” Winger said in September. “The board approved the project, based on a strong indication of support from the CBAI membership. We funded the organizational cost, which was subsequently reimbursed. The association drafted and shepherded enabling legislation through the Illinois General Assembly, and we worked to obtain regulatory approval for the charter. When the Independent Bankers’ Bank opened for approval in September 1986, the fledgling institution had a mere $3 million in capital. Today, IBB has several hundred million in assets, with more than 400 bank clients, reflecting the popularity of a community bank-owned correspondent that will never compete with its respondent institutions for customers. Unfortunately, IBB’s capital position has been compromised during this financial crisis and it needs to raise more capital to survive… We do believe that IBB’s existence is as important today at it was 25 years ago.”
Within minutes of the news that the Illinois regulator had closed IBB, CBAI issued this statement from Wingert: “I am saddened to hear of the closing of IBB by bank regulators. For nearly a quarter of a century, IBB provided valuable banking services for Illinois’ community banks, which allowed those banks to efficiently and economically serve the everyday needs of their customers. Unfortunately, recent economic realities caused IBB to suffer some financial losses from which it was unable to recover. Although community banks were well-served by IBB, the closure of this chapter will not change the fact that community abnks throughout Illinois provide unparalleled serve to the citizens and small businesses of our state.”
Robin Loftus, CBAI Chairman and executive vice president and COO of Security Bank, s.b., Springfield, added: “Financial Institutions that were clients of IBB will find other avenues to compensate for the loss of IBB, and our customers will not be negatively affected.”
Bankers’ Bank of Madison, Wis., is in the bests position to pick up the business of community bankers who will be looking for a new correspondent. Bankers’ Bank expanded its market territory from Wisconsin and Iowa to include Illinois about four years ago. Ron Slater, president and CEO of Bankers’ Bank, issued a statement in which he commented: “We’ve witnessed IBB’s inception and growth for more than two decades — they were one of us. To their credit, the bank had a solid shareholder and customer base that remained loyal through recent difficult times.” Slater’s bank extended its operating hours on Dec. 18 and opened for business on Saturday, Dec. 19, to accommodate banks that might need services.
“We hope that IBB customers will make the business decision to work with us,” Slater commented.
In addition to Illinois, IBB served banks in Indiana and Michigan.
After the Illinois Department of Financial and Professional Regulation closed IBB, the FDIC set up a bridge bank to wind down the bank’s on-going business. A third party has been hired by the FDIC to manage the Independent Bankers’ Bank Bridge Bank, N.A. The FDIC said that since a bridge bank has been set up, the closing is not expected to have “any meaningful impact on the bank’s clients.”
As of Sept. 30, IBB had $585.5 million in assets and $511.5 million in deposits. At the time of the closing, the bank had $269,000 in uninsured funds. Read the FDIC press release here.
The FDIC estimates the cost to the Deposit Insurance Fund will be $68.4 million.
Silverton Bank, N.A., which was founded in 1986 as the Georgia Bankers’ Bank, was closed on May 1, but two years ago it changed its charter so that while it continued to offer correspondent services it could no longer be considered bankers’ bank. For more, see “The Silverton Effect” in the Oct. 1, 2009 edition of NorthWestern Financial Review magazine by clicking here.
[...] to pick up the business of community bankers who will be looking for a new correspondent,” writes Tom Bengtson in the NorthWestern Financial Review blog. News updates Bank closings, bankers’ banks, [...]
Pingback by NFR Comments on Closing of Illinois Bankers’ Bank @ Wisconsin Banking Update — December 21, 2009 @ 12:19 am
As the principal consultant in the founding of ten Bankers’ Banks (including the Minnesota prototype) and the CEO of two Bankers’ Banks, totalling 25 years of active engagement with their conceptual and operational development, I possess a unique perspective that is now also tempered by 15 years of bank consulting and leadership development. The record to date is that Bankers’ Banks fail when they stray from their original mission, whether it occurs incrementally (Georgia) or the consequence of an acute tactical blunder (Illinois). This is not to say that asset quality will not, to some degree, reflect that of the banks served and the relative stress occurring in those markets. Nonetheless, the pursuit of profit and growth for their own sake rather than the result of providing services of value to community banks is an avoidable strategic error and should serve as a valuable reminder to other Bankers’ Banks that might be vulnerable to “mission creep” or unqualified opportunism.
The need for Bankers’ Banks has not diminished. If anything, their role has become profoundly more critical with the disappearance altogether of the traditional, reserve city, correspondent bank. Lumping them in the abstract category of “aggregators” (current federalease or newspeak)is both a disservice to Bankers’ Banks and a failure to recognize the nature and needs of community banking that, if not met, will greatly weaken their franchise and the communities they serve.
Comment by Noel Busch — December 21, 2009 @ 11:15 am
We are so sorry to hear about the recent demise of the IBB of Springfield. As a community bank in eastern North Dakota with a well established Correspondent Banking Department, we know how difficult it might be for banks in Illinois to continue to do business without a lending partner. We are also expanding into the Illinois market with our correspondent services and I just want readers to know we are available to assist them with loan participation services through our correspondent department. Check us out on line or drop me a line at gkeller@statebanks.com.
Comment by Gary Keller, VP Correspondent Banking, State Bank & Trust — December 21, 2009 @ 11:42 am