Colonial Bank Failure Highlights the Problem

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Jeff Nielson

The bankruptcy of Colonial Bank (CNB) was the largest bank-bankruptcy in the U.S. since several large, U.S. financial institutions collapsed last year – with the most recent being Washington Mutual, last fall. However, there is one huge difference between the mega-bankruptcies of last year and the collapse of Colonial Bank a week ago.

During the large bank-failures of 2008, the acquiring institutions wrote-down the “assets” on the books of these banks by an average of 18% - according to a Bloomberg article. However, when BB&T Corp purchased Colonial, it immediately wrote-down Colonial's assets by 37%, double the amount of discounting done last year.

What has changed between now and then? The legitimizing of fraudulent accounting, when the supposed “watch-dog” of U.S. accounting, the Financial Accountability Standards Board brought in new “mark-to-fantasy” accounting rules in the U.S. this spring ( see “FASB strong-armed into mark-to-fantasy accounting”).

Colonial Bank Failure Highlights the Problem -- Seeking Alpha

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