Impaired capital, not necessarily fraud, was behind the failure of a Chicago bank early this year – the first bank to fail in 2025 – the inspector general for the national bank deposit insurance agency said Tuesday.
“Pulaski Savings Bank’s failure occurred primarily due to impaired capital,” the office of inspector general (OIG) for the Federal Deposit Insurance Corp. (FDIC) said in a report. “Specifically, the bank had deposit liabilities of at least $20.7 million not accounted for in its core system. The recording of these deposits depleted the bank’s capital.”
The OIG described the “core system” as a computer system used to process and manage the operation of the bank. Such a system, the OIG report stated, typically consists of modules including account management, payments, loans, accounting, onboarding, and anti-money laundering.
When the bank’s closure was revealed by the agency and the Illinois Department of Financial and Professional Regulation (IDFPR) on Jan. 21, the FDIC said it preliminarily estimated that the failure would cost its Deposit Insurance Fund (DIF) about $28.5 million. “The estimate will change over time as assets are sold. Suspected fraud caused the higher estimated cost to the DIF,” the FDIC said.
In Tuesday’s report, however, the OIG said it notified the bank in late December of FDIC’s determination that the bank was critically undercapitalized. The agency then changed the bank’s interim CAMELS rating to 5, the lowest rating for a bank.
Prior to that, also in December, the report noted that in a Problem Bank Memorandum issued by the FDIC stated that the bank’s overall condition was deficient and that the bank’s board and management “failed to provide appropriate oversight and ensure that there were sufficient personnel to maintain accurate books and records.”
The existence of the $20.7 million in deposits was only confirmed when an outside contractor also in December, retained by the bank to update the bank’s general ledger, found that the bank had not posted some certificates of deposit to the core banking system.
The failure of the bank in January ended what had been six years of subpar (less than satisfactory) exam reports by the FDIC and the Illinois regulator.
The OIG report does not mention fraud as a cause for the bank’s failure.
Failed Bank Review – Pulaski Savings Bank, Chicago, IL
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