WASHINGTON — The Federal Reserve Board made history Friday by invoking special powers to shut down a Colorado bank, stepping into a role normally reserved for state regulators.
The central bank appointed the Federal Deposit Insurance Corp. the receiver for the $1.38 billion-asset Community Banks of Colorado in Greenwood. The FDIC then sold the bank’s operations to Bank Midwest NA in Kansas City, Mo.
The move, which followed three routine failures in the Southeast earlier in the evening, was peculiar on multiple fronts.
The Fed, the federal regulator for hundreds of state-chartered banks in the U.S., before Friday had never used its authority to close a bank. Under prompt corrective action rules established at the end of the savings and loan crisis, the central bank has the power to put one of its so-called state member banks in receivership after it becomes "critically undercapitalized." The Fed has 90 days to act after the bank reaches that status.
Community Banks of Colorado became critically undercapitalized on July 29, the Fed said in a press release, and the Fed took action on the last Friday before the deadline.
But typically, for state-chartered institutions overseen by both the Fed and the FDIC, the task of closing a bank is left to the state as it is the chartering authority. It is unclear why the Fed acted on its own, but the move suggested an absence of state action.
"It's unusual that the Fed acted and that the state did not," said Dwight Smith, a partner at Morrison & Foerster who specializes in banking and is a former federal banking regulator.
Messages left with a representative at the Colorado State Banking Commission and an email to Fred Joseph, the state's banking and securities commissioner, were not returned. A spokeswoman for the Fed did not have additional comment beyond the press release.
Also unclear is whether the bank's charter was actually revoked. Though the official releases from the Fed and the FDIC said the bank had been put in receivership, they did not say they closed the bank as is customary in announcements of failures.
Even if the charter remains, the bank's holdings do not. Bank Midwest agreed to assume all of the failed bank's $1.33 billion of deposits and acquire essentially all of its assets. The FDIC and the acquirer agreed to share losses on just over $714 million of those assets.
The failure, the nation’s 84th this year and the sixth in Colorado, was estimated to cost the FDIC nearly $225 million.