Analysis Of The Failure Of Superior Bank And Trust

Superior Bank & Trust

The thrift financial Institution Superior Bank & Trust is one of the largest. It is located in Chicago and has many branches eighteen of which can be found in the Chicago area. It is owned by one of Chicago's wealthiest families the Pritzkers and Alvin Dworman a well-known real-estate investor from New York. With assets totaling $2.3 billion and deposits of $1.6 billion Superior Bank FSB got caught up in some problems with sub prime loans. This was their main focus. Sub prime lending is lending to people who are poor credit risks. They lend money or issue credit cards at high interest rates. Many companies have prospered using this method but most have gone under due to rising default rates and early prepayments by borrowers who can refinance at lower rates. Superior Bank & Trust's failure was directly related to sub prime lending.

Regulators were believed to have detected problems as early as January 1999. These regulators should have been the ones to step in and notice that things weren't going the way they should have been. Instead Superior's management is bearing the brunt of the blame in this situation. Ellen Seidman states "responsibility for the success or failure of any depository institution rests with its management, directors, and owners." This may be true but if management and financial intermediaries had been performing their tasks properly they would have noticed that there where parties involved in their credit system that they didn't know enough about to make accurate lending decisions on. They should have noticed that their clientele accumulated as a result of adverse selection. They weren't given an option. They were picking the best of the worst. Management and owners should have questioned the intentions of their customers. They should have been aware that their clients might have only been accepting high interest rates because the likelihood of the loan being paid back was almost nonexistent.

As time progressed Superior Bank & Trust fell into deep financial arrears. As this became blatantly obvious regulators began to take action. A rescue plan was suggested. Pritzkers and Dworman were to back the company by putting almost $200 million

...