The United American Bank of Knoxville failed last February. The bank's location was misidentified yesterday.
Five Tennessee banks that were part of a chain controlled by financier C. H. Butcher are likely to fail this weekend, banking sources said.
State and federal regulators have been trying to find buyers for the banks ever since United American Bank of Nashville, which was controlled by Butcher's brother Jake, failed in February.
Dozens of bankers from Tennessee and other states attended a meeting at the Federal Deposit Insurance Corporation yesterday at which the situation at each of the five banks was outlined, sources said. The bankers apparently are those who would be most likely to bid on the banks if they are declared insolvent this weekend. Bidding forms were passed out at the meeting.
C. H. Butcher controlled about 28 banks in Tennessee and other states. Banking sources would not identify which five banks the FDIC expects to have to sell this weekend, and it is unclear whether he still is connected with them. Since they are state chartered banks, Tennessee authorities will have to declare them insolvent. The FDIC would then assume control of the failed banks as receiver. The agency also insures all deposits in the institutions up to a maximum of $100,000.
Although C. H. Butcher's banks were separate from the banks controlled by his brother, federal officials said there have been regular dealings among the institutions. Several federal officials said some bad loans that were made by United American were sold to banks controlled by C. H. Butcher.
In the weeks after United American failed several banks owned by C. H. Butcher faced runs by depositors. C. H. Butcher's Southern Industrial Banking Corp., which is not a bank but a finance company, is in bankruptcy.
Sources familiar with yesterday's meeting said Tennessee banking commissioner W. C. Adams told the bankers that the institutions might come up with enough capital by Friday afternoon to permit them to continue operations, but he reportedly said such a development is unlikely.
Sources said that if the banks are declared insolvent, the FDIC is considering packaging them as one bank which would have assets above $500 million. In that case, sources said, FDIC officials believe they could invoke the Garn-St Germain law, which allows bank regulators to invite out-of-state banks to bid on failed institutions bigger than $500 million.
Tennessee authorities, as well as the Tennessee banking community itself, are said to be opposed to any attempt to involve non-Tennessee banks in the bidding process.
The FDIC apparently wants to sell the failed institutions as "clean banks," which means the FDIC would assume responsibility for the bad loans in the banks' portfolios and would sell the good assets and the deposits to one or more institutions.