The FDIC shut down 7 more banks on Friday. The seven banks in question were all Illinois banks 140 banks closed their doors last year due to the financial crisis. 16 banks have failed this April bringing the total to 57 bank failures for the year. At the current rate, more than 185 banks will fail this year. That’s a remarkable number considering that unemployment is dropping and the economy is deemed stable. Apparently the banking sector is still feeling the after effects of the worst recession in US history. So, if the FDIC knows a banking institution is set to fail, why does the FDIC wait until Friday evening to announce it?
The FDIC places weak banks on watch lists months in advance and then speaks with potential bank suitors. Many individuals believe that bank failures are announced Friday evening to limit paranoia and a mass exodus of deposits from the bank. Since most people are not paying attention to financial markets over the weekend, bank closures can go largely unnoticed. This could help to prevent a run on deposits. Although this theory makes perfectly logical sense; it is not correct according to FDIC chairwoman Sheila Bair.
According to Bair, “The FDIC and the bank are putting together the merger of financial institutions in the matter of a weekend.” The goal is to open for business by Monday with new management in place. The three day weekend gives the FDIC the best chance to ensure an orderly sale of assets and a smooth transition. This involves transferring assets, communicating with employees, and merging operations. The FDIC’s goal is to have the financial insitution open for business the next business day. The fact that this process can take place in just 3 days is pretty remarkable. So, as you can see the best time for the FDIC to announce these banking failures is on Fridays after the close of business.
Photo by: neate photos
