Research on a Failed Bank - Community Bank of Rockmart

Running Head: Failed bank

Research on a Failed Bank -Community Bank of Rockmart

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Introduction

Since the start of 2010, two years ago, there has been continued witnessing of several United States financial institutions with a larger number of commercial banks failing. As at 2010, the total numbers of banks that failed and led to their closure were 157. In relation to the year 2007, only three commercial banks had failed and closed down. With this, none of the banks was reported to have failed and closed down in the two preceding years of 2005 and 2006 (Calomiris 2007). In this research paper, an analysis is made using Community Bank of Rockmart GA 57860 Century Bank of Georgia, following its closure on November 10, 2011.

Evaluation of the problems for bank failure

The community bank of Rockmart whose registration certificate according to Federal deposit Insurance Corporation (FDIC) is said to be 57860. Having been located in Georgia, it was first incorporated at the peak of the 2005 real estate bubble. This consisted of the members that came from the neighboring local community. In its early years, the bank prided itself due to the roots of the locals. The bank grew steadily with its focus on commercial real estate portfolio.

However, following the financial crisis of the year 2008, the real estate prices in the word market started to crumble. This on the side of the community bank did not spare it. This saw a rapid acceleration in the cases of delinquencies. According to the report from Kroll Bond ratings (2011), almost a third of the total loans owned by the bank started to experience some delinquencies. At the same time, the bank's asset ratio accelerated to a level of 367 percent at the end of 2010. The effect of this exposed the bank to a higher degree of failure. Greene (2011) in his analysis to asset ration, states that the moment an asset ratio goes beyond 100 percent, the certainty to the failure of any commercial institution is guaranteed to be 100 percent.

Following an E rating received by the bank in 2008, the bank's total financial position was weakened by the asset quality, capitalization problems and persistence in the net losses. Following the second quarter of 2011, non performing assets were valued at 330 percent of the total remaining equity capital together with the reserves. These were only covered by 12 percent of the available reserves. Having been placed under capitalization in 2010, it had continued to loose its capital for more than one year period. As reported by Deal and Braswell 2011), is that since 2009, the bank had not recorded any profit earning. Thus posting a total loss of $ 1.13 million as per the second quarter of 2011, in addition, the total negative ROA became 0.38 percent of $1.13 million in the second quarter of 2011, and an annualized cumulative ROA of negative 0.38%. After its disclosure, the bank's deposits were delegated to Century Bank of Georgia, rated at B+ (see the bank financial report in table 1 below).

Timetable for the failure

Following the failure of the bank on 10th November 2011, the Georgia department of banking made a decision to close down the bank. The decision reached led into the transfer of the deposits to the Century bank of Georgia. This is because the bank had been rated at B+ by FDIC. Before its failure, the bank's total assets were valued at $ 62.4 million. In addition, the total deposits taken from the investors were valued at $55.9 million. Apart from assuming all the deposits to the bank, the Century Bank of Georgia was given a mandate to purchase a total of $ 40.7 million assets from the bank. The rest of the assets were to be taken by FDIC.

Compensation packages

Following the closure of the community bank of Rockmart, arrangement was made and all obligations given to FDIC as a receiver to: purchase assets and assumption of liabilities, indemnification processes. Alongside these responsibilities, the receiver was to compensate all the bank's employees (Community Bank of Rockmart 2011). These group consisted of both the senior and lower level staffs.

Impact of the bank failure

Following the closure of the bank, numerous impacts were caused both to the local investors and the entire economy. This is because from its incorporation date, the bank was given mandate to accept deposits from all categories of investors. All the employed local employees to the bank were witnessed to have lost their jobs. Furthermore, just like failures to majority of the banks in Georgia, Community bank of Rockmart resulted into becoming a victim of the bad

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