Federal government shuts down NextBank, which issued credit cards over Internet
Friday, February 8th 2002, 12:00 am
By: News On 6
WASHINGTON (AP) _ Federal regulators have shut down NextBank, whose core business was issuing credit cards over the Internet. It was the first Internet bank shuttered by the government.
The Office of the Comptroller of the Currency, the primary regulator of nationally chartered banks, closed the Phoenix-based bank Thursday.
Government officials said the bank attracted customers of lower credit quality than anticipated and made a lot of delinquent loans.
``NextBank's unsafe and unsound practices were likely to deplete all or substantially all of the bank's capital, and there was no reasonable prospect for the bank to become adequately capitalized without federal assistance,'' said the Office of the Comptroller of the Currency.
The bank had no branches and no checking or savings accounts, regulators said. It solicited only certificates of deposits of $100,000 or more, so-called jumbo CDS. Those funds were used to support the bank's credit card business, regulators said.
``The OCC found that the bank would be unlikely to be able to pay its obligations or meet the demands of its depositors in the normal course of business,'' OCC said.
The Federal Deposit Insurance Corporation said the bank had total assets of $700 million and total deposits of $554 million. Approximately $29.4 million of those deposits are uninsured, said the FDIC, which was appointed receiver of the bank.
The FDIC said NextBank is the fourth FDIC-insured bank to fail this year.
The agency said it will begin mailing checks Monday to the failed bank's customers for the amount of their insured deposits. Customers with more than $100,000 on deposit should contact the FDIC and speak to a claims agent.
NextBank's Web site informed customers Friday that it was shut down by federal regulators and provided a link to the FDIC's site for further information.
The bank was bought by struggling online credit card pioneer NextCard Inc. of San Francisco in September 1999.
At OCC's insistence, the bank's board of directors in October 2000 adopted a detailed resolution designed to correct deficiencies in its risk-management policies. But the bank was unable to implement the resolution, OCC said.
``The bank failed to achieve profitability, and the $300 million in capital that had been provided by the bank's parent company, NextCard Inc., was dissipated through credit losses and high operating expenses,'' OCC said.
NextCard tried unsuccessfully to find a buyer for the bank. In January, NextCard told federal regulators it wasn't possible to come up with a capital restoration plan and that liquidating the bank's assets wouldn't raise enough money to cover its liabilities, the OCC said.