After a week’s hiatus, U.S. regulators were back in action, shuttering two more banks in Oklahoma and Wisconsin. These pushed up the number of failed U.S. banks to 25 so far in 2011. These were preceded by 157 bank failures in 2010, 140 in 2009 and 25 in 2008.
While the lifesaving programs launched by the government worked in favor of the bigger banks, many smaller banks are still struggling to survive. Relentlessly plunging home prices, lofty loan defaults and a still high unemployment rate continue to cloud such institutions.
With the industry absorbing bad loans offered during the credit explosion, the banking system is vulnerable to some severe problems. This is aggravating the risk of bank failures even further.
The failed banks are:
- Davis, Oklahoma-based The First National Bank of Davis, with total assets of about $90.2 million and total deposits of about $68.3 million as of December 31, 2010.
- Milwaukee, Wisconsin-based Legacy Bank, with about $190.4 million in total assets and $183.3 million in total deposits as of December 31, 2010.
These bank failures represent another jolt to the deposit insurance fund (DIF) meant for protecting customer accounts, as it has been appointed receiver for the banks.
The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,657 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank fails, the agency reimburses customers deposits of up to $250,000 per account.
Though the FDIC has managed to shore up its DIF during the last few quarters, the outbreak of bank failures has tested its limits. As of December 31, 2010, the fund remained in the red with a deficit of $7.4 billion, slightly better than the deficit of $8.0 billion in the prior quarter. The agency expects the fund to be in the black later this year.
The failure of The First National Bank of Davis is expected to deal a blow of about $26.5 million to FDIC, while Legacy Bank will cost about $43.5 million.
Pauls Valley, Oklahoma-based The Pauls Valley National Bank has agreed to assume the deposits and $28.5 million of assets of The First National Bank of Davis.
Chicago, Illinois-based Seaway Bank and Trust Company has agreed to assume the deposits and $165.9 million assets of Legacy Bank. The FDIC and Seaway Bank and Trust Company have agreed to share losses on $120.0 million of Legacy Bank’s assets.
The number of banks on FDIC’s list of problem institutions grew to 884 in the fourth quarter of 2010 from 860 in the previous quarter. This is the highest number since the savings and loan crisis in the early 1990s.
Increasing loan losses on commercial real estate are expected to result in hundreds of bank failures in the coming years. Going by the current rate of bank insolvencies, the DIF is likely to feel a $100 billion dent by 2013.
With so many bank failures, consolidation has become the industry norm. The failure of Washington Mutual in 2008 was the largest in the U.S. banking history. It was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).
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