Mountain News: Bad real estate loans lead to bank closure 

KETCHUM, Idaho - Federal banking officials in late April closed down a bank that had seven offices in resort areas of both Idaho and Wyoming, saying the bank was in unsound condition.

Reports from Jackson, Wyo., and in Ketchum, Idaho, differ slightly on the cause of the distress. However, they agree that loans made in Idaho's Teton Valley - the area around Driggs and Victor, across the pass and from Jackson Hole - were at least a significant part of the problem.

"There were difficult loans across the board, but the Teton Valley was definitely a major problem for this bank," Everett Covington, chief executive of the First Bank of Idaho, said. He told the Idaho Mountain Express that real estate sales in Victor and Driggs were nearly non-existent, and foreclosure proceedings had begun on many properties.

The story was much larger than simply one bank's troubles, said The Express , which is based in Ketchum.

"The bank's story is entwined with a booming national economy and people investing in vacation homes all over the West. It's the story of how a banking system became engulfed by a speculative market in which eye-popping growth ultimately could not be sustained," said the newspaper.

"The phenomenon transformed small towns into bustling boomtowns. It made savers look silly and speculative spenders look like geniuses. Lasting more than a decade, it looked like it might never end," the Express continued.

"It went far, it went fast. Then, like a car hitting the proverbial brick wall, it stopped."

That brick wall was met on Friday, April 24, when 50 federal agents arrived at the bank's headquarters in Ketchum. Formed there in 1997, the bank had three offices in the Wood River Valley plus another four offices in both Jackson Hole and in Teton Valley.

Indications of trouble had been previously reported. The bank's capital-to-loan ratio had fallen below 10 per cent at the end of 2008 due to defaulted loans or loans nearing default. On April 6, First Bank officials had been given until June 30 by the U.S. Treasury Department's Office of Thrift Supervision to raise sufficient capital to increase the capital-to-loan ratio to 12 per cent.

But the news of the agreement had the opposite effect. Worried about the security of their money, customers withdrew deposits. As well, the April 15 tax deadline resulted in a large volume of drafts, as people wrote cheques to the IRS to cover their taxes. Wilson McElhinny, chairman of the board for the First Bank of Idaho, estimated that $15 million in deposits had been removed.

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