More Bank Failures Ahead?
According to the Paris-based publication International Herald Tribune, a number of analysts are predicting more U.S. bank failures in the aftermath of the IndyMac tragedy. IHT’s Louise Story wrote Monday:
As home prices continue to decline and loan defaults mount, U.S. regulators are bracing for dozens of American banks to fail over the next year…
The nation’s banks are in far less danger than they were in the late 1980s and early 1990s, when more than 1,000 federally insured institutions went under during the savings-and-loan crisis. The debacle, the greatest collapse of American financial institutions since the Depression, prompted a government bailout that cost taxpayers about $125 billion.
But the troubles are growing so rapidly at some small and midsize banks that as many as 150 out of the 7,500 banks nationwide could fail over the next 12 to 18 months, analysts say. Other lenders are likely to shut branches or seek mergers.
William Isaac, chairman of finance consulting firm Secura Group and a former chair of the FDIC in the early eighties, told the IHT:
Failed banks are a lagging indicator, not a leading indicator. So you will see more troubled, more failed banks this year.
Story noted that troubled small and midsize banks all share something in common:
They vary in size and location, but their common woe is the collapsed real estate market and souring mortgage loans.
According to the IHT piece, the Federal Deposit Insurance Corporation, or FDIC, has $53 billion set aside to reimburse consumers for deposits lost at failed banks. However, the IndyMac situation will subtract $4 to $8 billion from that fund, the agency estimates, “and that could force it to raise more money from the banks that it insures,” Story said.
Source:
“Analysts say more U.S. banks will fail”
Louise Story
International Herald Tribune (France), July 14, 2008
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