Boom2Bust.com

Banking On Failure

Bank failures. They’re coming, according to a number of industry analysts. For them, the only question is, “How many?” Back on April 29, I wrote:

Sheila Bair, chairman of the Federal Deposit Insurance Corporation, said new data on the FDIC‘s so called “troubled bank” list will show an increase over the current 76 banks on the list. However, she added “that is not a big number” and the increase should not be construed as meaning a new wave of bank failures.

Earlier today, CNN Money editor-at-large Paul R. La Monica talked about ANB Financial, a small, privately-held bank in Bentonville, Arkansas, which has the distinction of being the third bank failure this year. La Monica wrote:

“We are going to see a fair number of bank failures,” said Chip MacDonald, partner in the capital markets group Jones Day, a law firm headquartered in Cleveland. “We are in the early innings. For the public banks that have reported earnings for the first quarter, it has not been a pretty picture.”

MacDonald predicts that more small banks like ANB will be shut down and that the list of so-called “problem institutions” being monitored by the Federal Deposit Insurance Corp. will grow much larger…

A spokesman for the FDIC said the agency will report figures for the first quarter on May 29. MacDonald said it would not surprise him if the number of problem banks is now up to 100 to 125 institutions.

According to the CNN Money editor, MacDonald added that larger banks, such as big subprime lender Fremont General out of Brea, California, could also be at risk of failure.

The Federal Deposit Insurance Corporation is aware of the growing threat from bank failures in the United States. Back on February 26, I noted:

In “FDIC to Add Staff as Bank Failures Loom,” [Wall Street Journal’s Damian] Paletta wrote:

The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.

FDIC spokesman Andrew Gray said the agency was looking to bulk up “for preparedness purposes.”

An independent agency of the federal government, the Federal Deposit Insurance Corporation was created by Congress in 1933 in response to the thousands of bank failures that occurred in the 1920s and early 1930s. At the end of 2007, it had $52.4 billion in its fund that backstops the nation’s insured deposits, according to the Journal.

Source:

“Get ready for more bank failures”
Paul R. La Monica
CNN Money, May 12, 2008