On November 4, 2023, the banking industry was taken by surprise when the Federal Deposit Insurance Corporation (FDIC) announced the closure of Citizens Bank12. This marked the fifth bank failure in the United States in 202312.
The Closure
Citizens Bank, based in Sac City, Iowa, was shuttered due to financial instability1. The Iowa Division of Banking sanctioned the FDIC’s takeover, subsequently appointing the FDIC as the receiver1. This decision was made without any public warning2, leaving many in shock.
The Aftermath
Following the closure, a Purchase and Assumption Agreement was made with Iowa Trust & Savings Bank1. They assumed all deposits and assets from Citizens Bank1, ensuring that there was no loss to any depositors3. The two branches of Citizens Bank reopened as branches of Iowa Trust & Savings Bank2.
The Underlying Issues: Trucker Loan Defaults
During a joint and ongoing examination of the bank, examiners identified significant loan losses, more information can be found here – https://bankregblog.substack.com/p/a-bank-failure-in-iowa
The bank was declared insolvent3. It had a concentration of out-of-territory and out-of-state loans to one industry and incurred heavy losses on some of those loans3.
The trucking industry has been facing a series of challenges, which have led to an increase in loan defaults1. One of the main factors contributing to this is the rise in auto loan delinquency rates1. Loans more than 60 days delinquent have been increasing, up 30.8 percent from a year prior1. This trend is particularly noticeable among subprime drivers, who are most directly affected by inflation and can be vulnerable to lenders1.
In the case of Citizens Bank, a significant portion of their loan portfolio was concentrated in the trucking industry1. The bank had extended loans to truckers across the country, many of whom were unable to repay their loans due to the aforementioned challenges in the industry1. This led to significant loan losses for the bank, ultimately resulting in its closure1.
Conclusion
The closure of Citizens Bank serves as a stark reminder of the volatility that can exist within the banking industry. It underscores the importance of robust financial health checks and the role of regulatory bodies like the FDIC in maintaining the stability of the banking system. The case of Citizens Bank also highlights the interconnectedness of various sectors of the economy, and how challenges in one sector can have far-reaching impacts.
For additional information, the FDIC has established a toll-free number for customers of Citizens Bank3. The FDIC also provides resources on its website3.
For those who prefer video, a more detailed and nuanced report can be found here :
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