Bank failures continue unabated as the U.S. regulators closed down three more banks in Indiana, Virginia and South Carolina last Friday. This brings the number of U.S. bank failures to 61 so far in 2011, preceded by 157 in 2010, 140 in 2009 and 25 in 2008.
While the financials of bigger banks have been stabilizing on the back of an economic recovery, many smaller banks are still struggling to survive. Nagging issues like rock-bottom home prices along with still-high loan defaults and unemployment levels continue to trouble such institutions.
Lingering effects of the financial crisis continue to weigh on many banks. It becomes a prerequisite for such banks to absorb bad loans offered during the credit explosion, making them susceptible to severe problems. The uncertain environment is aggravating the risk of bank failures.
The failed banks are:
- Richmond, Virginia-based Virginia Business Bank, with total assets of about $95.8 million and total deposits of about $85.0 million as of March 31, 2011.
- Columbia, South Carolina-based BankMeridian, N.A., with about $239.8 million in total assets and $215.5 millionin total deposits as of March 31, 2011.
- Evansville, Indiana-based Integra Bank, National Association, with about $2.2 billion in total assets and $1.9 billion in total deposits as of March 31, 2011.
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 7,575 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 customer deposits of up to $250,000 per account.
Though the FDIC has managed to shore up its deposit insurance fund during the last few quarters, the ongoing bank failures have kept it under pressure. As of March 31, 2011, the fund remained in the red with a deficit of $1.0 billion, which was, however, substantially better than the deficit of $7.4 billion in the prior quarter.
The failure of Virginia Business Bank is expected to deal a blow of about $17.3 millionto the FDIC, while BankMeridian, N.A.and Integra Bank, N.A.will cost about $65.4 millionand $170.7 million, respectively.
Richmond, Virginia-based Xenith Bank has agreed to assume the entire deposits and assets of Virginia Business Bank.
Orangeburg, South Carolina-based SCBT, National Association has agreed to assume the entire deposits and assets of BankMeridian, N.A. The FDIC and SCBT, National Association have agreed to share losses on $179.0 million of BankMeridian, N.A.’s assets.
Evansville, Indiana-based Old National Bank has agreed to assume all deposits and assets of Integra Bank, N.A. The FDIC and Old National Bank entered into a loss-share transaction on $1.2 billion of Integra Bank, N.A.’s assets.
The number of banks on FDIC’s list of problem institutions saw a marginal increase to 888 in the first quarter from 884 in the previous. This is the highest number since way back in March 31, 1993, when there were 928 problem institutions due to the then savings and loan crisis.
Increasing loan losses on commercial real estate could trigger hundreds of bank failures in the coming years. Going by the current rate of bank insolvencies, the DIF is likely to feel a $52 billion dent by 2014. However, considering the track record so far this year, the FDIC does not expect the number of bank failures in 2011 to surpass that of 2010.
With so many bank failures, consolidation has become the industry fashion. For almost all the failed banks, the FDIC enters into a purchase agreement with healthy institutions. When Washington Mutual collapsed in 2008 (branded as the largest bank failure in the U.S. 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).
