September 29, 2007 (LPAC)--According to a press release by the Federal Deposit Insurance Corporation (FDIC) on Sept. 28, NetBank, a pioneer of internet-based banking with $2.5 billion in "assets," has been taken into receivership by the FDIC. They emphasized that "no advance notice is given to the public when a financial institution is closed." The bank's website has been closed to transactions until Sept. 30. This is the largest bank closing in the U.S. since the savings and loan crisis of the early 1990's, according to the Sept. 29 Financial Times.

The FDIC announced that ING DIRECT (subsidiary of Dutch financial giant ING GROEP) has assumed the insured $1.5 billion in deposit accounts of the failed bank for a 1% premium. ING also bought $724 million of assets. "This is all about confidence in the market," according to smooth-talking Arkadi Kuhlmann, CEO of ING DIRECT, as quoted in the FT. "Since we are the largest direct bank we were very pleased to assist and help out and hopefully take on these customers who will continue to business on the internet."

NetBank "had significant problems with respect to loan underwriting, poor documentation, and a high amount of early payment defaults," according to a spokesman for the Office of Thrift Supervision (OTS), which closed the bank on Sept. 28.

This whole operation appears to have been preemptive in nature, to avoid a nasty run on the virtual bank, should depositors have caught wind of its precarious financial conditions. ING stepped in within an hour of the bank closing, in a seamless transition of ownership. The OTS even admitted that the "institution continued to operate in excess of minimum capital standards," but that "high operating expenses combined with continuing losses were jeopardizing the institution's viability." A panic run on a U.S. bank, even one with only virtual doors to barricade, could bring down the whole house of cards.