Why did regulators close Sonoma Valley Bank?

  • The Sonoma Valley Bank branch on Napa Street in Sonoma. (PD FILE, 2010)

A steady stream of customers and shareholders filtered through Sonoma Valley Bank on Monday, asking regulators why they closed the bank and reopened it under the ownership of Westamerica Bank.

"It appears that not all shareholders were well informed about the condition of the bank," said Gordon Talbot, a spokesman with the Federal Deposit Insurance Corporation who was on hand to answer their questions.

While many customers were stunned by the bank's seemingly sudden closure on Friday night, its demise followed nearly a year of heavy scrutiny by federal regulators.

Sonoma Valley Bank had been forced by regulators to drastically restate how much it lost during the real estate downturn, and twice missed deadlines to raise additional money to meet federal guidelines.

The closure left some bank executives grumbling that regulators were overly aggressive and did not give them enough time to recover from the financial wounds received when a handful of large real estate loans soured with the economy in 2009.

Talbot said the government couldn't give the bank more time. The government had to take action, Talbot said, after Sonoma Valley Bank executives failed to raise about $20 million needed to meet federal guidelines — first failing to meet a May 13 deadline and then failing to meet an Aug. 15 deadline.

"Any bank that has run out of capital has effectively failed," Talbot said. "If a bank that doesn't have enough capital is allowed to continue operating, that means an undercapitalized bank is operating in the community. Ultimately that erodes confidence in banking in general."

Yet some banks with worse capital ratios are allowed to continue operating by regulators, said Philip Van Doorn, a senior banking analyst for TheStreet.com.

"Most of the banks that failed recently had lower capital ratios," Van Door said. "But I don't know if there is any basis for saying the FDIC was hasty."

Van Doorn said that in the current economic climate it was nearly impossible for Sonoma Valley Bank to raise the money it needed to avoid being seized.

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