2010 Worst Year for Bank Failures Since 1992
By David S. Hilzenrath
Washington Post Staff Writer Tuesday, December 28, 2010
More banks failed in the United States this year than in any
year since 1992, during the savings-and-loan crisis, according to
the Federal Deposit Insurance Corp.
Amid high unemployment, a struggling economy and a
still-devastated real estate market, the nation is closing out the
year with 157 bank failures, up from 140 in 2009. As recently as
2006, before the bubble burst, there were none. Now, there are more
on the horizon. The FDIC's list of "problem" banks - those whose
weaknesses "threaten their continued financial viability"- stood at
860 as of Sept. 30, the highest since 1993. Historically, about a
fifth of banks on the watch list end up failing.
Bank failures have left the FDIC insurance fund in the red, but
the agency predicts that it will have more than enough money to
meet the anticipated cost of failures through 2014.
As the financial crisis of recent years recedes, the FDIC has
been predicting that 2010 will be the high-water mark for bank
implosions.
"Going forward, the FDIC looks to see fewer failures," agency
spokesman Greg Hernandez said.
Some industry observers agreed.
"I think we're over the hump of the problem but far from the
end," banking consultant Bert Ely said.
Gary B. Townsend, president of Hill-Townsend Capital, said the
industry is not just out of the woods, "we are far beyond the
woods."
By one measure, the trouble is already abating. On average, the
banks that failed this year were much smaller than those that
failed last year.
The banks that failed this year had assets totaling $92.1
billion, a decrease of 45.7 percent from the $169.7 billion in
assets of the banks that failed in 2009.
"These are very small institutions," Townsend said. "The total
assets that they represent is insignificant compared to the
financial system as a whole. It's quite manageable."
Ordinarily, failed banks continue to operate virtually
seamlessly. Typically, they are taken over by other banks in
transactions arranged by regulators. Federal deposit insurance, for
which the Federal Deposit Insurance Corp. was named, protects
depositors from losses up to the insurance limits.
Since the closure of IndyMac Bank jolted the system in 2008,
even uninsured deposits have been protected in more than 90 percent
of failures, Ely said. Although depositors may be unaffected,
borrowers can suffer disruptions to their credit lines, he
said.
Bank failures are generally lagging indicators of economic
trouble. The economy can be on the mend by the time struggling
banks succumb.
Some of the nation's largest banks survived as a result of
government assistance and are not included in the tally of
failures. In 2009, for example, aid went to eight banks, including
Countrywide and Bank of America. Their combined assets totaled $1.9
trillion.
The list of failed institutions at the FDIC is filled with
community banks that would not be considered "too big to fail."
The loans that brought them down were predominantly commercial
loans, Hernandez said, which sets them apart from the banking
giants whose problems were rooted in home mortgages.
About half of the the 2010 failures involved banks headquartered
in four states: California, Florida, Georgia and Illinois.
The list included four Maryland banks: Bay National Bank and
Ideal Federal Savings Bank of Baltimore, K Bank of Randallstown,
and Waterfield Bank of Germantown. There was one in Virginia,
Imperial Savings and Loan of Martinsville, and none in the
District.
As of Sept. 30, the FDIC insurance fund for bank deposits had a
balance of negative $8 billion. But that doesn't include reserves
such as premiums collected in advance from the banking
industry.
Also, as of the third quarter, the agency was predicting that
bank failures would cost $52 billion through 2014. The FDIC has the
ability to cover that, Hernandez said.