The failure of Washington Federal Bank for Savings in Chicago is raising several questions, including a fundamental one: Why did a bank that reported such strong financial metrics suddenly collapse?
The $166 million-asset thrift,
Regulators took action less than two weeks after the death of John Gembara, the thrift’s chairman, president and CEO. A Dec. 5
The Office of the Comptroller of the Currency, in a brief written statement Friday, said it stepped in “after finding the bank had experienced substantial dissipation of assets due to unsafe or unsound practices.” The agency added that the bank’s assets “were less than its obligations to its creditors and others.”
An OCC spokesman declined to comment further. A call to Leonard Szwajkowski, Royal’s president and CEO, was not immediately returned.
Washington Federal was founded in 1913 by Gembara’s grandfather. His father, Emil, ran the bank from 1980 to 1997.
Another reason the thrift’s failure stands out is Royal’s agreement to buy only the insured deposits, making it likely that some customers will not recoup all of their uninsured funds. The last failed-bank acquisition where only insured deposits were covered took place in January 2009, when 1st Centennial Bank failed in Redlands, Calif.
About 8% of Washington Federal’s $144 million in deposits exceeded the $250,000 federal deposit insurance limit, though the estimate may change, the FDIC said. Uninsured depositors may later receive a portion of their uninsured amount as the FDIC sells off the failed bank’s assets during the resolution process.
Royal agreed to buy $23.7 million of the failed bank’s assets and to pay the FDIC a 1.26% premium for the insured deposits. The failure was estimated to cost the Deposit Insurance Fund $60.5 million.
