Academic

Bank Failures Update And Future Problem Banks

By Kim Krawiec

A few weeks ago, in Bank Failures in Historical Perspective, I noted that the total number of FDIC bank closures for the year was at 57, putting us on pace for close to 100 FDIC bank closures for 2009.  In the intervening weeks, the FDIC has closed more banks, bringing the total for the year to 72.  See here for the FDIC's full list of failed banks since October 1, 2000.  Moreover, the pace of failures has increased in recent weeks, moving the anticipated number of FDIC bank closures closer to 125-150 for 2009 if the current pace continues. (See the chart at right, which does not include this Friday's three bank closures, courtesy of Calculated Risk).  Click on any chart to enlarge.

As a reminder, although this year?s bank failures are nothing to feel good about, it?s helpful to put today?s FDIC closures in historical perspective.  As shown in the chart at right, once again, courtesy of Calculated Risk, bank closures were far more numerous during both the Savings & Loan Crisis and during the 1920s and early 1930s, before the FDIC was created in 1933.  For example, the number of bank failures is estimated at 4000 for the year 1933, and 500 bank failures per year was commonly seen during the 1920?s.

Of course, the number of banks isn't the only relevant measure of distress from bank failures. Many banks today have more branches, and far more assets and deposits.  Nor do bank closures paint the whole picture of economic crisis ? in the current financial crisis, many of the most spectacular failures or bailouts have been of non-bank financial institutions.  (For those interested, there is some discussion in the comments to this prior post of other potential measures).

Calculated Risk also has an unofficial list of ?problem banks,? ?compiled from regulator press releases or from public news sources.?  However, my unsystematic perusal suggests to me that nearly every bank on the list has a link to an official enforcement action or agreement of some type. 

Not all banks closed by the FDIC make it first onto the problem list.  For example, I spot two of the three banks closed on Friday ? Community First Bank, Prineville, Oregon; and Community National Bank of Sarasota County, Venice, Florida; but not First State Bank, Sarasota, Florida -- on the list.  According to CR, in the comments:

not all failures are on the list. There are two possible reasons: 1) the FDIC is slow to release the formal agreements, or 2) the bank is seized without ever receiving a [formal] warning. Option 2 happened a number of times last year, but my understanding is they are trying to change the process and have a formal warning first.

I?m sure there will be more developments on the bank failure front still to come.  Stay tuned. 

Related Post: Bank Failures in Historical Perspective

Full post as published by The Faculty Lounge on August 10, 2009 (boomark / email).