FDIC Closes Guaranty Bank – What Does This Mean for Customers?

After years of losses and weak financials, the FDIC swooped in last night and closed Guaranty Bank. With over $1 billion in deposits and 119 branches scattered across 5 states, thousands of depositors and borrowers are wondering, “what happens next”?


As lender liability lawyers, we deal with banking issues across the United States. One of my first jobs as a lawyer was representing the FDIC. Bank closures are something we understand quite well.


For most Guaranty Bank customers, the FDIC closure order will be nothing more than an inconvenience. Of Guaranty’s 119 branches, 107 of those are in grocery stores. Those will not be re-opening. Customers accustomed to depositing or cashing checks there will have to find a new place to bank. Their accounts are safe, however. Debit cards will still work and checks will still be honored even though the bank is no longer in business.


We say “most” customers because there could be issues with commercial customers. More on that later in the post. Because Guaranty Bank catered to grocery store branches, it wasn’t widely known as a business bank. This post will first address the concerns of consumers and then discuss business borrowers.


Why Guaranty Bank Was Closed by Regulators


Guaranty Bank has been in trouble since 2009. The bank blames the financial crisis of 2008 but regulators disagree.


Guaranty Bank is regulated by the Office of the Comptroller of the Currency. Earlier this year, the “OCC” gave a final warning to Guaranty. In March, the bank was issued a “prompt corrective action directive.” Basically, the bank was told it needed to shore up its finances or risk getting shut down.


That corrective order wasn’t the first, either. We are aware of at least two other directives.


After the OCC’s directive, Guaranty Bank CEO Douglas Levy assured the community and borrowers that the bank had turned the corner and was headed to solvency. Obviously, he wasn’t telling the truth.


In Levy’s words,


“Nothing is new or alarming or a surprise to us. Basically, these are things that the OCC believes that we need to be doing in order to turn around the bank. We’re still at work in terms of returning the bank to the proper capital levels. And things are going well for us. Despite our capital levels continuing to be low, we actually had positive net income in eight out of the last 11 months, and we’re projecting to be profitable this fiscal year. So we keep executing on our plan, but we continue to be under a regulatory order.”


Obviously, Levy should have been alarmed. Ditto for customers and employees. We feel bad for those folks who relied on the bank’s false spin on things. Yesterday hundreds of Guaranty Bank employees were looking forward to a spring weekend. Today they are scrambling for new jobs.


Regulators don’t warn customers before closing a bank. The goal of regulators is to find a new bank to take over accounts and minimize alarm to the community. If the government had announced the closure of Guaranty Bank in advance, thousands of customers would have likely flocked to the bank demanding their cash. That would cause a run on the bank and would make it very difficult to find a new bank willing to take over.


Announcing a bank closure or insolvency would also cause employees to quit and could lead to some bankers making questionable loans to friends and family.


Now that the bank is closed, the OCC released a short statement yesterday saying "The [agency] acted after finding that the bank had experienced substantial dissipation of assets or earnings due to unsafe or unsound practices.” Levy told reporters this spring that the bank’s problems were caused by the “Great Recession.” Evidently the OCC believes the bank’s problems were caused by mismanagement.


Sometime between March of 2017 when the final warning was issued and last night, the OCC decided that the public needed to be protected and the bank did not have sufficient assets or a viable plan to stay in business.


Because Guaranty bank is regulated by the OCC, they issued the order closing the bank. The FDIC then stepped in as receiver and secured a new bank to take over Guaranty Bank’s accounts. That bank is First Citizens Bank & Trust Company of Raleigh, North Carolina. All of this went on behind the scenes and with no public notice. As is typical for bank closures, the FDIC entered the bank branches at 5:00 pm and secured records, computer access and the like.


Senior management is likely gone but most tellers in the branches that will remain open and operational folks will be working for the new bank.


As of this morning, First Citizens is running the bank. Unfortunately for customers, they elected to close 107 of Guaranty’s 119 branches.


What Does the Closure of Guaranty Bank Mean for Consumers?


For consumer questions, the FDIC has issued a FAQ or “frequently asked questions” guide for Guaranty Bank Customers (BestBank in Michigan and Georgia).


The good news is that no one lost any money. Although the FDIC insurance limit is $250,000 per account, the agency found another bank to take over the deposits. All deposits were transferred, even those worth more than $250,000.


Accessing your money may be difficult if you are used to doing your banking at the grocery store. Those branches won’t be reopening. You can find one of the 12 remaining Guaranty Bank branches, find an existing First Citizens branch or conduct your banking electronically or by mail. Obviously, you can simply elect to close your account and move to a different bank. If you owe on a loan or credit card, however, you are stuck paying First Citizens.


Guaranty bank checks will still be honored until replaced with new First Citizens checks, debit cards will work, etc. Ditto for direct deposits and automatic bill pay. Between the savings and loan crisis of the 1980’s and the recent financial meltdown in 2008, the FDIC has become pretty good at making the transition to a new bank painless for most customers.


One thing that will change is interest rates. If you have a savings account, First Citizens is not required to keep the same interest rates as Guaranty. Check with the bank but don’t be surprised if phones are busy for several days!


Guaranty Bank Closure and Commercial Customers


If you are a commercial customer of Guaranty Bank, your relationship with First Citizens Bank may change.


Frequently commercial borrowers sign short term notes with the expectation that the notes will be automatically renewed each year. Although that may have been the practice at Guaranty Bank, First Citizens may choose not to honor that practice.


Generally, banks are only obligated to honor the terms of the loan agreement. Unless a note has an automatic renewal term, banks can decide to simply not renew. In many states, however, courts have found that the bank’s prior course of conduct can mean that absent a change in finances, the bank must renew. The common law requirement that banks deal with customers in good faith also applies.


Depending on how a new bank acquires the old bank, the new bank (here First Citizens) may have no obligation to honor loan commitments and renewals. (This is an area in which you need experienced lender liability counsel. We can help!)


Another area of concern are commercial loans that have not yet closed. If Guaranty Bank gave you a loan commitment but has not yet funded the loan, contact your loan officer immediately. If the matter doesn’t resolve to your satisfaction, call us right away.


Finally, there are issues for commercial borrowers who may have claims or pending litigation against Guaranty bank. What happens now?


As receiver, the FDIC will step into Guaranty’s shoes but they are not liable for any judgments against the bank. State and federal law set forth a hierarchy of who’ gets paid first.


Once again if you have claims against Guaranty or are in litigation with the bank, we can help. We are happy to assist you in pursuing or evaluating claims against Guaranty Bank.


MahanyLaw and Judge, Lang & Katers – Two Law Firms, One Voice


The lender liability lawyers at Mahany Law and Judge, Lang & Katers work together to represent commercial and high net worth borrowers. We never represent banks.


If you have a commercial loan issue or litigation involving Guaranty Bank, call us. Our minimum amount in controversy is $5 million. Unfortunately, we are not equipped to take any consumer cases. If you are a consumer with questions, please contact the FDIC or the state or county bar association where you live. In most locales, the bar association operates a free lawyer referral service.


For more information, contact attorney Chris Katers at [hidden email] or by phone at (414) 777-0778. The author of this post, attorney Brian Mahany, can be reached at [hidden email]. If you are a bank employee with knowledge of misconduct, call Brian. You may be entitled to a cash award. (See our sister site for Guaranty Bank whistleblower award information.)


MahanyLaw and Judge, Lang & Katers – America’s Lender Liability Lawyers – “We Sue Banks.”

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