Regulators Shut Down a Savings Bank Friday July 27, 8:08 PM EDT

WASHINGTON (Reuters) - U.S. regulators on Friday shut down Hinsdale, Ill.-based Superior Bank, a savings bank with $1.9 billion in assets and 18 branches in the Chicago area, saying it was insolvent and unable to operate safely.

The Office of Thrift Supervision said it had closed the bank after it became critically undercapitalized, and had appointed the Federal Deposit Insurance Corporation (FDIC) to run the institution until it could be sold.

Superior Bank was purchased by two prominent families in 1988 -- the Pritzker family of Chicago, owners of Hyatt Hotels, and the Dworman family of New York, whose interests include real estate and financial services, the OTS said.

The agency said the bank had run into trouble because of a high-risk business strategy focused on generating home and auto loans to less-credit worthy borrowers for securitization and sale in the secondary loan market.

It said the bank, which has around $1.9 billion in assets and $1.5 billion in deposits, had also suffered from poor lending practices, improper record keeping and accounting, and ineffective board and management supervision.

"Superior became critically undercapitalized largely due to incorrect accounting treatment and aggressive assumptions for valuing residual assets," the OTS said in a statement. "The bank also experienced significant losses during 2000 from its automobile lending program."

As of Friday, Superior had about $43 million of potentially uninsured deposits held by about 1,000 depositors, the FDIC said. That agency -- which backs accounts held by savers up to a limit of $100,000 -- will inject $1.5 billion into Superior to keep it operating as normal until a buyer can be found.

"By transferring operations ... the FDIC will be better able to effect an orderly resolution with little or no disruption to insured depositors or other customers," Acting FDIC Chairman John Reich said in a statement. "Our goal is to have the institution back in private hands before year's end."

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-- Martin Thompson (mthom1927@aol.com), July 27, 2001