Politics and bank regulation don't mix

7 December 2009 By Rolfe Winkler

FDIC tried to seize and sell Ohio s AmTrust last January but local politicians intervened. The bank went bust 11 months later a delay that may have increased FDIC’s losses. The lesson: keep the regulatory apparatus free from politics.

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AmTrust Bank of Ohio was closed by the Office of Thrift Supervision on Friday. As of Oct. 27, it had $12 billion of assets and $8 billion of deposits. It was the fourthlargest bank failure of the year. FDIC was appointed receiver and sold $9 billion of AmTrust's assets to New York Community Bank of Westbury, New York. $6 billion of the sold assets are covered by a losssharing agreement with FDIC, which anticipates the failure will cost its Deposit Insurance Fund $2 billion.

Measures of AmTrust's capital and earnings showed marked deterioration over the past year. Core leverage as measured by FDIC fell from 5.36 percent at September 30, 2008 to 2.47 percent at September 30, 2009. Return on assets declined to 4.72 percent from 2.82 percent. The average for all FDIC insured institutions at September 30 2009 were, respectively, 8.54 percent and 0.14 percent.

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