Bad Management Sinks Bank

Douglass National Bank of Kansas City, Mo., has become the first failure of a U.S. bank or thrift in 2008.

The Office of the Comptroller of the Currency announced the closing of the $53 million institution late Friday, with the Federal Deposit Insurance Corp. appointed as receiver.

In its announcement, the OCC cited the Douglass National Bank's "unsafe and unsound practices" and stated that the bank's losses threatened to wipe out its capital. The institution was significantly undercapitalized per regulatory guidelines for the three quarters ended Sept. 30, 2007.

TheStreet.com Ratings had downgraded Douglass National Bank to an E- rating (very weak financial strength) in December 2006, because of repeated net losses, poor loan quality and the low level of capital.

Due to various management problems, the bank had been operating under a formal agreement with the OCC since March 2006.

The previous bank failure was Miami Valley Bank of Quincy, OH, which was closed down by the Ohio Superintendent of Financial Institutions back in October.

Good News for Depositors

All three of Douglas National Bank's offices reopened this morning as branches of Liberty Bank and Trust Company, a New Orleans-based institution with $327 million in assets. Liberty acquired all of Douglass National Bank's assets and deposits, except for $2.8 million in repossessed real estate.

Unlike some depositors of Miami Valley Bank and NetBank, which also failed in October, none of Douglass National Bank's depositors lost money. Liberty Bank and Trust acquired all of Douglass's deposits, even those that exceeded FDIC insurance limits. This was confirmed by David Barr, the FDIC's assistant director for public affairs. Mr. Barr said it was very unusual for uninsured depositors to experience no losses in a bank failure.

The Importance of Bank and Thrift Ratings

While depositors escaped unscathed from Douglass National Bank's failure, there were significant losses for business depositors in other recent bank failures.

If your deposits in a bank are less than the FDIC's standard $100,000, you may feel no need to worry about your bank's health. However, chances are that you are associated with a business, school district or other entity with large deposits in a local bank.

TheStreet.com Ratings provides conservative financial strength ratings for all U.S banks and thrifts. You can easily check your institution's rating using the ratings screener.