STATE OFFICIAL: DEPOSITS ARE SAFE

Closings of the five Exchange Banks on Thursday marked the first bank closings in Missouri in two years, said Commissioner of Finance Earl Manning.

The commissioner stressed that all deposits are safe and sound.

Manning was in Cape Girardeau late Thursday to oversee bank closings in Cape Girardeau and Jackson.

Major causes of the banks' failures were insider dealings and poor management rather than poor economic conditions, said Manning.

"Loans were made to officers, directors and principal shareholders and their families, friends and business associates at preferential rates and under conditions that might not be available to the general borrowing public," he said. "That's an unsafe and unsound banking practice."

Manning could not say how much money was involved in the insider loans, but the losses were spread out among all five banks.

The insider loans are the subject of a U.S. attorney's office investigation, said Manning. "Some of our records have already been subpoenaed," he said. "Presumably, they'll present their findings to the grand jury."

The law provides three different ways for the commissioner of finance to take over control of a bank. Each of the First Exchange Bank and Trust boards of directors employed a procedure that has been used only one other time in the last 30 years, said Manning.

"We can take over banks in three ways. If the bank refuses to make its records available to us, we take over the bank. If the bank becomes insolvent, we can take control. As a third option, the board of directors can voluntarily assign the bank to the commissioner of finance. That's what happened in this case. Typically, the second scenario is used," he said.

According to court records, the directors of the bank approved a resolution March 25 that concluded the insolvency of the banks was inevitable and "that there was no prospect for recovery or recapitalization of the bank."

The board then directed the banks be placed in the hands of the commissioner of finance.

"The board recognized the problems and realized they didn't have the resources to deal with it. They felt it in the best interest of the banking public to voluntarily sign the bank over to me," said the commissioner.

This move saved the FDIC and taxpayers money, Manning said. "If they had not done this, we would have had to order a new examination of all five banks, and that would have taken time. The banks would have continued to operate and the losses would have continued to build," he said.

He said the Division of Finance had worked for two years in an effort to save the banks. "We had hoped to turn the banks around with infusion of new capital, but none was available," Manning said.

The strength of the markets was demonstrated by the spirited bidding for the five banks. No fewer than 10 banks or holding companies bid for the assets and liabilities of the closed banks, he said.

By law, the FDIC must award the bank to the highest bidder, he said.

Manning said they always try to close the banks one evening and reopen the next morning under new ownership. That is done to avoid a run on a bank, he said.

This situation was unusual in that the closings were done on a Thursday as opposed to a Friday.

"We had originally scheduled the closings Friday, but we realized that Friday was a holiday (Truman's birthday) and that the courts would be closed," he said. "We have to get approval of the circuit court in every county where there was an Exchange Bank to name the FDIC as the liquidating agent."

The banks are now well managed and well capitalized, Manning said.

"We are very pleased that there will be no interruption of banking services to the customers of the failed banks," he said. "A customer of one of the closed banks simply became a customer of the successor to that bank. In fact, there is no effort required by the customer; the new banks will honor First Exchange checks for the time being."

The commissioner of finance said there are no plans to close any other banks in Missouri this year.

"We think the economy will gradually pick up strength, and that will help the banking industry," he said. "Nationally, there are fewer bank closings each year. We hope that trend will continue."