The failure late Friday of Nevada's Silver State Bank is shedding light on the increasingly fraught struggle between federal and state regulators as they decide whether to close flagging lenders.

The Federal Deposit Insurance Corp. had planned to shut down the Henderson, Nev., bank on Aug. 29. But the FDIC lacked the authority to close Silver State, which is a state-chartered bank and whose primary regulator is the Nevada Financial Institutions Division. Shortly before the FDIC planned to swoop into Silver State's offices at the start of the Labor Day weekend, the Financial Institutions Division decided to let the bank stay in business, according to people familiar with the matter.

A week later, the state regulator agreed to pull the plug, making Silver State the 11th U.S. bank to fail this year. The FDIC late Friday transferred most of Silver State's deposits to Nevada State Bank, a unit of Zions Bancorp, a Salt Lake City bank with $55 billion assets. The FDIC estimates the failure could cost its already-strained insurance fund up to $550 million.

It's hard to gauge the impact of the weeklong delay in closing Silver State, which grew over-exposed to poorly performing real estate loans. Federal officials say they generally prefer to act sooner rather than later because that can reduce the costs of the government intervention if the bank's financial health is rapidly decaying.

The reason for the takeover delay between Aug. 29 and Sept. 5 is unclear. FDIC spokesman David Barr said the agency had been hovering over Silver State since early August, but the decision of when to close it ultimately fell to the state regulators. Representatives of the Nevada Financial Institutions Division didn't respond to requests for comment.

The move has potential political consequences. Until recently, Andrew McCain, the son of Republican presidential nominee Sen. John McCain sat on Silver State's board. The younger Mr. McCain, 46 years old, was a member of its three-person audit committee, which was responsible for overseeing the company's financial condition.

After five months on Silver State's board, Andrew McCain stepped down July 26, citing "personal reasons." Earlier that week, regulators had intensified their scrutiny of Silver State and began monitoring its financial stability on a daily basis, according to a state regulatory filing. The day before Mr. McCain resigned, another major Nevada bank, First National Bank of Nevada, had failed.

There is no evidence that Mr. McCain committed any wrongdoing or that Sen. McCain had any knowledge of or involvement in the Silver State situation.

Taylor Griffin, a spokesman for Sen. McCain, said Andrew McCain stepped down after realizing that Silver State "needed directors who could devote a great deal of time and attention to guiding the bank through this challenging time. Living in Phoenix and having just accepted the chairmanship of the Phoenix Chamber of Commerce, Andy realized that it would be difficult for him to devote the time and attention that Silver State's shareholders and depositors deserved."

Mr. McCain's ties to Silver State date to 2006, when he became a director of Choice Bank, a small Scottsdale, Ariz., lender that Silver State acquired that year. Choice was smaller than Silver State, but its deteriorating finances have hurt the parent company. Silver State last month took an $18.8 million write-down due to the "continued deterioration" of Choice's credit quality, according to a securities filing.

Mr. McCain joined Silver State's board and audit committee in February. In June, a routine exam by federal and state regulators found that Silver State "exhibited extremely unsafe and unsound practices and conditions," according to the Nevada Financial Institutions Division.

If Mr. McCain had remained on Silver State's board another four days, his position on the audit committee would have required him to sign off on the company's second-quarter financial statements. Three weeks after Mr. McCainquit, Silver State had to revise those second-quarter numbers to reflect a larger net loss.

www.godlikeproductions.com/forum1/message603375/pg1