Review of the Failure of Fayette County Bank

Under new leadership in 2013, Fayette County Bank of St. Elmo, Illinois, implemented an aggressive growth strategy that contributed to its collapse and an estimated $10 million loss to the federal Deposit Insurance Fund. We reviewed the reasons for FCB's failure.

We found that FCB failed because it fueled the rapid growth through loans originated with little or no underwriting. These loans led to losses that depleted the bank's capital. In addition, FCB's board of directors failed to provide effective oversight and was unable to hire or retain competent management. The Federal Reserve Bank of St. Louis generally took decisive supervisory action after discovering FCB's deficiencies. Ultimately, FCB's board of directors and management did not address those deficiencies and could not locate any outside investors to help prevent the bank's failure.

We noted an opportunity to enhance communication between the Board of Governors of the Federal Reserve System's Legal Division and the Federal Reserve Bank of St. Louis. Because we recently made a recommendation to address a similar finding, we are not recommending any additional steps to address our finding in this report.