Posted on Saturday, 5th December 2009 by admin
U.S. banking regulators took over six more banks on Friday, bringing the 2009 bank failure tally to 130. So, even with the post-financial crisis situation stabilizing a year later, the continued stream of bank failures serves as a stark reminder that we aren’t out of the woods yet. Smaller banks are expected to continue to fail at an higher rate through next year, due in large part to the pressures of deteriorating loans.
Of course, unemployment will continue to be a problem, as it impairs the abilities of borrowers to repay their debts. The squeeze appears to be lightening, as job cuts slowed considerably in November, but the unemployment rate is nonetheless expected to peak next year.
Going forward, commercial real estate loans are expected to be the problem, as they take longer to unravel. Smaller banks have a disproportionately large exposure to this piece of the real estate market because it was an easier space for them to compete against larger commercial banks during the boom.
According to the FDIC, regulators closed three banks in Georgia on Friday, along with a bank each in Virginia, Illinois and Ohio. This year, 24 banks have failed in Georgia alone. The latest to fall, however, was in Cleveland. AmTrust had assets of $12 billion and deposits of $8 billion. The New York Community Bank of Westbury, N.Y., has assumed AmTrust’s deposits. The other five banks had assets of less than $1 billion.
These six failures could cost the FDIC’s insurance fund $2.3 billion or more. Through 2013, the aggregate impact of bank failures on this fund could reach $100 billion (from a start in 2009). Because of this, the FDIC has required that banks prepay three years of industry assessments, which is good for around $45 billion.
Only three months ago, the tally had yet to reach 90 closures, said Richard Booth, vice chairman of Guy Carpenter, in a September podcast. In 2008, only 25 banks failed, with only three doing so in 2007. The last time the banking sector suffered this severely was in 1992.
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