subject: U.S. Bank Failures Zoom to 90 [print this page] U.S. Bank Failures Zoom to 90U.S. Bank Failures Zoom to 90
Bank failures resume unabated as the U.S. regulators closed down four more banks on Friday. Out of the four failed banks, two were based in Maryland and one each in Oklahoma and New York. This brings the total number of bank failures to 90 so far in 2010, compared to 140 in 2009, 25 in 2008 and 3 in 2007.
Although the economy is showing signs of a gradual recovery with the stabilization of larger financial institutions, tumbling home prices, high loan defaults and a high unemployment rate continue to blow small banks.
While we expect the complete economic recovery to gain momentum soon, there remain lingering concerns in the banking industry. Failure of both residential and commercial real estate loans as a result of the credit crisis has primarily hurt banks.
As the industry absorbs faulty loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures. Economic threats related to the European debt crisis and BP Plc (BP - Analyst Report) oil spill further add to the concerns. The Federal Deposit Insurance Corporation (FDIC) expects bank failures to peak in the third quarter.
The failed banks are:
Baltimore, Maryland-based Bay National Bank, with total assets of $282.2 million and total deposits of $276.1 million.
Baltimore, Maryland-based Ideal Federal Savings Bank, with about $6.3 million in total assets and $5.8 million in total deposits.
Blackwell, Oklahoma-based Home National Bank, with total assets of $644.5 million and total deposits of $560.7 million.
Port Chester, New York-based USA Bank, with total assets of $193.3 million and total deposits of $189.9 million.
These bank failures will deal another misfortune to FDIC's fund meant for protecting customer deposits, as it has been appointed receiver for these banks.
When a bank fails, the FDIC reimburses customers for their deposits of up to $250,000 per account. However, the outbreak of bank failures has significantly stretched the regulator's deposit insurance fund. The FDIC has about $66 billion in cash and securities in reserve to cover losses arising from bank failures. The receiver also has access to the Treasury Department's credit line of up to $500 billion.
The four failed banks together would cost the FDIC about $159.9 million. Bay National Bank is expected to cost the deposit insurance fund about $17.4 million, Ideal Federal Savings Bank will cost about $2.1 million, Home National Bank will cost an estimated $78.7 million and USA Bank will cost about $61.7 million. Lutherville, Maryland-based Bay Bank, FSB will acquire the deposits of Bay National Bank.
The FDIC was unable to get a financial institution to take over the banking operations of Ideal Federal Savings Bank. As a result, the corporation approved the payout of the insured deposits of the failed bank. Claremore, Oklahoma-based RCB Bank agreed to buy all the deposits of Home National Bank and Enterprise Bank & Trust agreed to buy $260.8 million of the failed bank's assets. Phoenixville, Pennsylvania-based New Century Bank will assume USA Bank's deposits and most of its assets.
In the first quarter of 2010, the number of banks on the FDIC's list of problem institutions grew to 775 from 702 in the fourth quarter of 2009. This is the highest since the savings and loan crisis in the early 1990's.
Following the dreadful phase of the economic downturn, the banking industry's profits soared during the first quarter of 2010. However, this was primarily led by the big banks, while small banks remained strained by deteriorating credit conditions.
Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates bank failures to cost about $60 billion over the next four years.
The failure of Washington Mutual in 2008 was the largest in U.S. banking history. It was acquired by JPMorgan Chase (JPM - Analyst Report). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB - Analyst Report), U.S. Bancorp (USB - Analyst Report), Zions Bancorp (ZION - Analyst Report), SunTrust Banks (STI - Analyst Report), PNC Financial (PNC - Analyst Report), BB&T Corporation (BBT - Analyst Report) and Regions Financial (RF - Analyst Report).
