DENVER (AP) — The downturn in real estate at a time of high unemployment, foreclosures and bankruptcies led to five Colorado bank failures this year that could cost the nation’s deposit insurance fund about $1 billion, or about one-fifth of the fund’s overall losses in 2011.

At least half a dozen more Colorado banks are under consent orders from the Federal Deposit Insurance Corp. to raise more capital.

In all, eight banks have failed in Colorado since 2008 — a number that pales in comparison to the dozens that California, Florida, Georgia and Illinois each have had. Banks in those states have dealt with a cascade of bad loans as the real estate market suffered. Georgia has had 67 failures, far more than any other state.

Banking consultant Bert Ely suspects the problems in Colorado were slower to emerge. The state had no failures in 2010.

“One of the things that makes it difficult to predict when banks are going to fail is how quickly regulators act to close a troubled bank, in terms of detecting problems in the first place,” he said. “That may be part of problem.”

The $1 billion FDIC estimate represents losses through July 29 for the fund that protects depositors’ balances, up to $250,000 per account.

In each failure, the FDIC had ordered the bank to raise more capital. It also ordered several to evaluate their management, and some, the FDIC warned, had too many loans concentrated in a particular area like construction and development, which struggled after 2008.

Colorado’s unemployment rate tops 8 percent, while its foreclosure rate consistently ranks among the top 10 states.

The failed banks had a higher proportion of assets tied up in commercial real estate, said Fred Joseph, state securities and banking commissioner. That sector was hit hard by the economic downturn, and banks that had lent heavily to developers struggled along with developers who had trouble paying back loans.

United Western Bank of Denver and Louisville-based FirsTier Bank closed in January. Both had been among the largest Colorado-based commercial banks, with combined assets of almost $2.8 billion.

The others were Colorado Capital Bank of Castle Rock, which had branches in the greater Denver area, in Edwards outside Vail, and in Colorado Springs; Signature Bank of Windsor; and Bank of Choice in Greeley.

FirsTier, which opened in November 2003, closed with no one taking over. Its failure came after a rapid expansion in which it opened branches and added to its loan portfolio far faster than it had outlined in an FDIC-reviewed business plan, according to an August report by the FDIC’s Office of Inspector General.

FirsTier focused on loans for residential development concentrated in areas north of Denver, the report said. That left it vulnerable to sharp downturns in Colorado’s real estate market. In fact, more than half of the bank’s loan portfolio was in residential acquisition, development or construction loans by the end of 2006.

The report said bank managers failed to effectively manage risks. But it also said a more proactive supervisory approach by bank examiners could have encouraged FirsTier to reduce its risk.

Similarly, the FDIC’s Office of Inspector General found United Western had high concentrations in riskier mortgage-backed securities; certain construction, land, commercial real estate and nonmortgage commercial loans; and institutional deposits.

It said federal regulators didn’t adequately address United Western’s issues and could’ve acted sooner.

Like the banks that failed, the six ordered by the FDIC to raise capital are spread around the state.

They are The Pueblo Bank and Trust Co., Front Range Bank of Lakewood, Mile High Banks based in Longmont, Champion Bank in Parker, First Southwest Bank in Alamosa, and Pine River Valley Bank in Bayfield.

The consent orders haven’t been terminated yet, according to online records, and the FDIC doesn’t comment on banks’ progress in meeting them.

Colorado Bankers Association President and CEO Don Childears said he doesn’t think Colorado will have more failures this year. As of last week, regulators have closed 73 U.S. banks in 2011, compared with 127 at the same point a year earlier.

Colorado banks have 50 percent more capital than is traditionally required by regulators, Childears said. By regulators’ own calculations, 85 percent of banks in Colorado are considered well-capitalized or adequately capitalized, he said.

“They may not be making good profits right now, but who is in this economy,” Childears said. “But they’re good and stable.”

Boston-based NBH Holdings Corp. bought 16 Community banks of Colorado branches from Greenwood Village-based Community Bankshares Inc. as well as assets of Bank of Choice in Greeley. Its CEO, Tim Laney, said this summer that Colorado’s growing population and level of residents with higher education make it an appealing state in which to do business.

The latest census figures show Colorado had about 5 million residents in 2010, up from about 4.3 million in 2000. Census data from 2000 show about one-fifth of those age 25 and older had bachelor’s degrees.

“We think Colorado is going to prove to be one of the more attractive states to be in. We want to be part of it,” he said.

Bank managers are expected to take calculated risks in deciding loans, said Sanjai Bhagat, a provost professor of finance at the University of Colorado’s Leeds School of Business. To encourage them to take a closer look at which loans to make, he suggested that top bank managers be required to have a significant equity stake in the bank that they would hold until at least two to three years after they retire.

“Once the CEO or CFO is holding a lot of bank equity, now if the equity starts going down, they will see their own net worth go down. They will think long and hard about undertaking unwise business risks,” Bhagat said.

by Catherine Tsai, AP Writer (Copyright 2011 by The Associated Press. All Rights Reserved.)

  1. Fabiana says:

    ) that output would acrneise perfectly in line with spending . I actually think that real output will rise by a greater factor than the dollar injection of net public spending. The robust studies of the value of the expenditure multiplier, especially when there is so much excess capacity, points one to that conclusion. Have you studied that literature in detail? I doubt it from the tenor of your remarks.I also have never advocated zero taxation and you will not see that in the blog so the statement that if the Australian govt funded it’s AUD 300bn budget in this manner is erroneous and a misrepresentation.In MMT, taxation has a very important function although that function has nothing to do with funding national government spending.You say:The reality is that debt-funding of deficits is a mechanism that imposes a restraint which helps to ensure that government spending is kept productive.That is your un-researched opinion. It doesn’t bear scrutiny. Can you outline the mechanisms whereby bond markets (and the auctions conducted by the AOFM) determine projects that are allegedly productive against those that are not? Can you show me once when the bond auctions have failed because the investors thought the government was wasting money ?Given that the auctions never fail, perhaps by your own logic, you are thinking that all net public spending to date has been productive.The proposition that bond markets bear witness to the productivity of net government spending is completely far fetched. They do nothing of the sort. The proposition also raises the issue again of what we are going to call productive . However, that debate is never conducted within the realm of a government bond auction.So your reality is just your ideological prejudice nothing more.Further, you said:For example, if the Australian govt funded it’s AUD 300bn budget in this manner, instead of through taxation and borrowing, do you truly imagine output would acrneise 30%?Finally, you once again misrepresent my position as advocating no taxation. The only statement I made was that net positions would not be matched by debt-issuance if I was running the show. Further, you do not understand the way in which the fiat currency system operates taxes do not fund anything . Taxation merely takes purchasing power out of the hands of the non-government sector so they don’t spend as much.And there is a logical gap here that you haven’t quite worked out if there was no taxation then the federal budget would be very much closer to zero than the figure you wishesbill

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