Bank Failures: 1,000 Banks to Fail, FDIC Running out of Money

By: CaraTan   Date: 30 August 2009

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CaraTan

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Cara Tan, editor

 

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Baltimore, USA, 30 August 2009. "I think we'll lose 1,000 banks out of the system...over the next two years. We've already lost 81 this year. The numbers are climbing everyday. Now many of these institutions nobody has heard of," said John Kanas, whose firm bought over Florida's BankUnited in May.

"Government money has propped up the very large institutions as a result of the stimulus package and the way it was designed," Kanas added.

"There's very little lifeline available for the small institutions that are suffering...lots of the commercial real estate problems reside in the regional banks and the small community banks across America because the larger banks haven't participated in that market and haven't fueled the growth in that sector in the past."

A look at some of the failed institutions reveals that indeed many of them are small local banks. While their assets may not have been huge, the collective effect of so many of them going under does nothing to restore confidence.

Some of the August failures include:

     

    • Community First Bank, from the small town of Prineville, Oregon. Community First had $209 million in total assets.

    • The rural community of Newnan, Georgia saw First Coweta Bank shut down, with $167 million in assets and about $155 million in deposits.

    • Forest Lake Georgia was home to Mainstreet Bank, worth $459 million in assets and $434 in deposits.

     These are only three of 15 banks which closed in August. July was worse, with 19 closures. In total, there have been 81 failed banks in the US in 2009 so far.  

 
But these are all small figures. Between 1989 and 1993, 15 percent of the banks in the nation failed. Compare that with the 2 percent rate of failure we've seen so far. This indicates there are many more closures on the horizon, as the conditions today are much worse than they were in the '89-'93 slump.

As loans go unpaid, most notably from the commercial real estate sector, the FDIC's fund is being depleted.

In 1933 the Federal Deposit Insurance Corporation (FDIC) was created as a government corporation designed to protect up to $100,000 of deposits per depositor. The FDIC currently insures 8,195 banks in the US.Recently the FDIC raised its protection to $250,000 per depositor, though it will be reduced back to $100,000 on 1 January, 2014 for most accounts.

The FDIC's fund dropped 20 percent to $10.4 billion in the second quarter, as US banks posted losses of $3.7 billion.

Congress has mandated that the FDIC's fund be at minimum ratio of 1.15 percent of the insured deposits. It is now at a mere 0.22 percent.

Only once has the FDIC fund hit red. It had to borrow $15 billion from the Treasury during this time in the savings-and-loan crisis of the early 90s. Many feel the fund will be depleted again soon, even by the end of 2009.

Vladimir Gonazales, EconomyWatch.com

 


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