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Colonial BancGroup Inc., the Alabama lender facing a criminal probe, had its banking operations closed by regulators and taken over by BB&T Corp. in the biggest failure since Washington Mutual Inc. collapsed last year.

Branches and deposits of Colonial Bank, ranked second in its home state, were turned over to BB&T in a deal brokered by the Federal Deposit Insurance Corp. The failure of Montgomery-based Colonial followed a Florida expansion that left the company with more than $1.7 billion in soured real-estate loans.

Colonial had assets of $25 billion and deposits of about $20 billion, the FDIC said. BB&T will buy about $22 billion of the assets and the FDIC will dispose of the rest later. The FDIC and BB&T signed a loss-sharing agreement on about $15 billion of assets, the regulator said. The failure will deplete the FDIC’s deposit insurance fund by $2.8 billion, the agency said.

Colonial said last month there was “substantial doubt” it could survive and on Aug. 7 said part of its mortgage-lending business was the target of a U.S. criminal probe. The Securities and Exchange Commission issued subpoenas for documents related to accounting for loan loss reserves and participation in the U.S. Troubled Asset Relief Program, the bank said.

Investor demand for emerging-market bonds is driving the cost of insuring against debt defaults below industrialized governments for the first time.

Credit-default swap prices from Turkey to Indonesia are falling as bonds rise amid signs that their economies are recovering faster than developed nations. As the U.S. and U.K. borrow record amounts to fund bank bailouts and stimulus, Brazil, Russia, India and China have $3 trillion in reserves, up 19 percent from January 2008 and now 43 percent of the worldwide total.

The annual cost of protecting holdings in Turkey’s bonds fell by half to $200,000 per $10 million for five years, or 200 basis points, sinking below New York City swaps for two weeks starting July 22. Indonesia debt insurance dropped below Michigan the next day. Brazil swaps just had their biggest four-month slide ever. For China, protection is near the cheapest in a year. China swaps cost 66 basis points, down from 297 on Oct. 24. That’s cheaper than Greece and Ireland and within 9 points of Austria, Italy, and Spain.

Eleven years after Russia defaulted; investors want less to insure its debt than California’s. Swaps on California have risen more than three-fold in the past year as its credit rating was lowered two levels to Baa1 by Moody’s, the same level as Russia, which reneged on $40 billion of sovereign debt payments in 1998. Russian default swaps are near a 10-month low of 255 basis points, about 20 basis points less than contracts linked to California.

• AnOldieButaGoodie: A 4,000-year-old concept may be 1 solution to the current problem of tight credit. http://blogs.afponline.org/Payments/ #

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Here’s a report from AFP Government Relations Manager Jeanine Arnett:

Following yesterday’s announcement by President Obama of a financial regulatory overhaul, the Senate Banking Committee convened a hearing this morning where they are receiving testimony from Treasury Secretary Timothy Geithner. In his prepared remarks, Geithner provided an overview of the President’s plan and highlighted several areas where the regulatory structure will change.

Of note to AFP members and other treasury professionals, Geithner said that this new approach to regulation “cannot be built based on banning specific financial products that are deemed too risky.” This position is reassuring in that it suggests that the new regulatory structure will be focused on establishing a firm system on overall and not a knee-jerk reaction to individual occurrences.

Secretary Geithner went on to say that the new model will strengthen both consumer and investor protections. Oversight and rules will focus on greater disclosure and seek to prevent abuses.

Members of the Committee were very skeptical of giving the Fed new regulatory authority based on the past occurrences of the Fed as a good regulator of banks. Secretary Geithner reiterated that under this new plan, the Fed would only have a modest increase in authority and ensured substantial and sufficient checks and balances.

Watch Secretary Geithner testify live.
Read Secretary Geithner’s full statement.

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AFP’s website, www.afponline.org, is updated on a very frequent basis (usually several times per day).  Because our site is large, and covers a diverse number of categories, we think it would be beneficial to give a general summary of our website updates right here on this blog.  I will try to publish blog entries detailing the website updates on a weekly basis going forward.

To start things off, here is a summary of the updates that we think our members would be most interested in:

AFP Forums:

- AFP Retail Treasury Forum speakers, agenda, and education updates

- AFP Payments Forum education and agenda updates

- AFP Corporate Risk Forum language and pre- and post-forum seminar updates

Professional Development:

- Webinars added

- New Half-Day seminars added

- “Now That You’re a CTP” page added to the Certification section

Newsletters:

- Brand-new Women in Finance Newsletter launched

- Latest editions of the AFP Payments, Risk!, and Accounting Newsletters added

- December ‘08 / Janaury ‘09 Regulatory and Legislative Update added

AFP Annual Conference:

- New information added to the 2009 AFP Annual Conference section

Sponsors:

- Sponsor listings updated for the AFP Payments and AFP Retail Treasury Forums.

- New Sponsored Whitepaper from PriceWaterHouseCoopers added (Whitepapers are now accessible via the Quick Links menu)