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Banks Fail in Colorado, North Carolina Ratings had assigned Cape Fear Bank an E-minus (Very Weak) rating in March, based on Dec. 31, 2008 financial information. The institution's capital ratios had slipped below what is normally considered well-capitalized in the third quarter of 2008. At the end of the year, Cape Fear's tier 1 leverage ratio was 5.66% and its total risk-based capital ratio was 8.01%, barely above the 8% required for an institution to be considered adequately capitalized under ordinary regulatory requirements.

Cape Fear Bank's losses mounted through 2008, as the institution was overwhelmed by losses in its construction loan portfolio.

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While the FDIC has been able to find buyers for all deposits for most of the failed bank and thrifts during 2008 and 2009, there have been three failures in the past month in which the agency couldn't line up a buyer. In these situations, depositors with uninsured balances face potentially heavy losses.

Nearly all of New Frontier Bank's deposits were insured. The FDIC has temporarily increased the basic deposit insurance limit on individual accounts to $250,000 and waived all limits on insurance coverage for non-interest-bearing checking accounts. But these changes, which have done so much to mitigate the risk of runs on deposits, are set to expire at the end of 2009.

It is also apparent that even in a crisis environment, the regulatory supervision process can be rather slow, as it took regulators four months to issue a cease and desist order to Cape Fear Bank after what must have been a pretty ugly examination.

Another thing to consider is that even if your personal deposits are under FDIC insurance limits, you or someone you know are probably associated with a business, organization or government entity (such as a school district) with large deposits of somebody else's money in a local bank. In this environment, it is a very good idea to look into the health of your bank. Ratings issues independent and very conservative financial strength ratings on each of the nation's 8,500 banks and savings and loans which are available at no charge on the Banks & Thrifts Screener. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the Insurers & HMOs Screener.

As originally published, this article contained an error. The original article erroneously reported that approximately $150 million, or 10%, of New Frontier Bank's deposits were uninsured. In fact, the FDIC said that approximately $4 million of the bank's deposits were in accounts that might have exceeded deposit insurance limits. This error has been corrected. regrets the mistake.

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Philip W. van Doorn joined Ratings., Inc., in February 2007. He is the senior analyst responsible for assigning financial strength ratings to banks and savings and loan institutions. He also comments on industry and regulatory trends. Mr. van Doorn has fifteen years experience, having served as a loan operations officer at Riverside National Bank in Fort Pierce, Florida, and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a Bachelor of Science in business administration from Long Island University.
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