Silver State is 11th failed bank this year

WASHINGTON (Reuters) - Silver State Bank, which recently included Republican presidential candidate John McCain's son on its board, was closed by regulators on Friday, becoming the 11th bank to fail this year, as the struggling economy and falling home prices take their toll on financial institutions.

Andrew McCain, whom Senator John McCain adopted in a previous marriage, formerly served as a director of the Henderson, Nevada, bank, which was closed by Nevada state officials and taken over by the Federal Deposit Insurance Corp.

Andrew McCain sat on Silver State's board in February and served on the audit committee, bank regulatory filings show.

He resigned in July due to "personal reasons," the bank said. He previously served as a director of Choice Bank in Scottsdale, Arizona, from 2006 to April 2008 when Choice Bank merged with Silver State.

His involvement in the bank during the current credit and housing problems is a reminder of his father's alleged role in the massive savings and loans scandal decades ago.

In the late 1980s John McCain was one of five senators known as the "Keating Five." They were investigated by Congress over their alleged roles in the crisis, which resulted in a U.S. taxpayer bailout.

They were accused of aiding Charles Keating, who was the chairman of the failed California-based Lincoln Savings and Loan Association. McCain and another senator, John Glenn, were cleared in the Senate Ethics Committee investigation.

On Thursday John McCain accepted the Republican Party's presidential nomination. He and his running mate Alaska Gov. Sarah Palin are battling Democrat Barack Obama and his vice presidential running mate Joe Biden for the White House.

The FDIC said the Silver State -- a subsidiary of Silver State Bancorp -- had $2 billion in assets and $1.7 billion in deposits as of June 30. The failure is expected to cost the FDIC deposit insurance fund between $450 million and $550 million.

The bank was heavily exposed to illiquid and poor quality loans primarily in the commercial real estate business as well as development and construction loans in distressed markets in Nevada and Arizona.

There was no indication of any wrongdoing by Andrew McCain involving Silver State's failure.

Nevada State Bank, which is based in Las Vegas, has agreed to assume the insured deposits. The transaction did not include about $700 million in volatile, high-cost insured funds called brokered deposits.

Nevada State Bank is a subsidiary of Zions Bancorp.

The FDIC said it would pay the brokers directly for their deposits at Silver State, which was closed by Nevada state banking officials. Its branches will reopen as Nevada State Bank in Nevada and National Bank of Arizona in Arizona.

The FDIC estimated there was about $20 million in uninsured deposits.

Customers can access their money over the weekend by check, teller machine or debit card, the FDIC said.

The biggest bank failure by far this year was IndyMac, seized on July 11 with $32 billion in assets and $19 billion in deposits as of March. It was the third-largest bank insolvency in U.S. history.

The FDIC oversees an industry-funded reserve, which currently stands at about $45 billion, used to insure up to $100,000 per account and $250,000 per individual retirement account at insured banks.

The federal insurer said Nevada State Bank would also buy a small unspecified amount of assets made up of cash and securities. The FDIC said it would try to sell the remaining assets at a later time.

Silver State Bank is the second bank to fail in Nevada this year. First National Bank of Nevada in Reno failed in July.

The agency also has a running tally of problem banks that its examiners closely monitor. At the end of the second quarter, 117 institutions were on that list.

The FDIC does not name the institutions currently on the list until a bank on the list later fails.

FDIC spokesman David Barr said Silver State was placed on the problem bank list on August 5.

Each time the FDIC takes over a bank, agency staff members investigate why it failed. The FDIC's inspector general is expected to issue a report on Silver State within the next six months.

Barr said the FDIC staff was not treating the investigation into Silver State any differently from how it looked into previously failed banks.

"This bank is being treated like all the other banks that have failed," Barr said.

(Editing by Clarence Fernandez)