Horizon Bank first U.S. bank failure of 2010

Jan. 10, 2010

WASHINGTON, Jan 8 (Reuters) - U.S. regulators closed Horizon Bank (HRZB.O) of Bellingham, Washington, on Friday, kicking off what has been forecast as a peak year for small bank failures.

The Federal Deposit Insurance Corp said Horizon Bank had approximately $1.3 billion in total assets and $1.1 billion in total deposits as Sept. 30.

Friday's bank failure is expected to cost the FDIC's insurance fund a total of $539.1 million.

The 18 branches of Horizon Bank will reopen during their normal business hours beginning on Saturday as branches of Washington Federal Savings and Loan Association and deposits will continued to be insured by the FDIC.

Community banks are facing persistent pressure from deteriorating loans, many tied to commercial real estate projects that have collapsed or are in decline.

Regulators closed 140 banks last year, the highest level since 1992 when officials were still cleaning up from the savings and loan crisis. That compares with 25 in 2008 and only three in 2007.

FDIC Chairman Sheila Bair has said in the current banking crisis, failures will peak in 2010 and then start to subside.

The price tag for the bank closings is expected to total $100 billion from 2009 through 2013, according to the FDIC.

The failures have drained the agency's deposit insurance fund, but the agency recently collected about $45 billion by having banks prepay three years of industry assessments.

The FDIC expects the insurance fund's balance will remain negative until 2013 but says it has plenty of access to cash, including the ability to tap a $500 billion line of credit with Treasury.

In a new twist in the way the FDIC collects fees, the agency may propose next week that banks with risky employee compensations practices be ordered to pay more for deposit insurance.

The proposal is preliminary and it is unclear if it will gain favor with other regulators or the industry. (Reporting by Doug Palmer and Karey Wutkowski; Editing by Gary Hill)

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