13 Bank Failures and counting in 2009 - will we see 150+ this year?

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Permalink Reply by Jeffry Pilcher on February 17, 2009 at 3:57pm

Yes, we will see close to 150 bank failures this year, although some will be disguised as mergers (ala WaMu, Wachovia). The number of true FDIC seizures/closures like IndyMac will be less.

Also, note these predictions from various analysts (as report last October on CNBC):
http://twitpic.com/1j6mi

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Permalink Reply by David Seelenfreund on February 17, 2009 at 4:23pm

Banks, like every industry, will be shrinking. Banks will return to the traditional model of banking versus being a bank that sells insurance or stocks. Banks that will focus on banking will be the ones who survive this economic downturn.
My theory is that the Government should approach the smaller banks and use them to start the engine. The government should encourage the small banks to lend by guarantying up to 50% of their loans as long as they lend. For example, if a bank lends up to $200MM, the Government will guaranty $100MM. The small banks are being conservative now due to their fear of a loan going bad. By the Gov't guarantying half, the bank will be willing to lend and take some risk knowing that the Gov't stands behind them if there is a loss. Otherwise, more banks will fail.

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Permalink Reply by Joseph Ramos on February 18, 2009 at 11:56am

150 bank failures is huge. Does anyone have a list of the likely candidates? Is it spread out among small, medium and large banks, or is it mostly small regional banks.

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Permalink Reply by Tim_Cleveland on February 18, 2009 at 12:10pm

Supposedly, the FDIC troubled bank list is a closely guarded secret, but there is a lot of conjecture about who is on the list. The only thing that leaks out is that while the list has historically be populated with a mximum of 20 or so banks, that it is currently well over 100. Again, all of this is conjecture and rumor. The idea is that the FDIC does not want to cause runs on any of these financial institutions, which will only hasten the failures. For example, there is some conjecture that that WAMU failed because Charles Schumer ran his mouth that it was doomed and there was a run of sort.

The Call Reports and TFR reports available on the fdic.gov website can give you an idea of who might be doing worse than you think. But that takes picking through each individual report.

I am thinking that 2009 will eb a bumper year for closures to the extent that the solvency of the FDIC will come into question. The recent so called foreclosure assistance from President Obama will not budge anything as the main problem is that people who could never be expected to pay off a loan, regardless of interest rate, amortization schedule or rising and fallin home values.

Tim

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Permalink Reply by Eric Meyerson on February 18, 2009 at 7:26pm

It's worth noting that IndyMac was not even on the FDIC watchlist the month before they seized it. Now THAT is scary.

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Permalink Reply by Tim_Cleveland on February 18, 2009 at 8:40pm

Right. And a couple of the banks that have failed int eh last few weeks were under no heightened regulatory scrutiny. Most bank exams are on 18 month cycles. Some of these banks are going from being considered well managed to total failure in less than 18 months. Word is the regualtors are staffing up and bringing back retired personell. Presumably, the 18 month cycle will beshortened to at least 12 months for everyone for the foreseeable future.

Tim

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Permalink Reply by Donnie Dugan on February 25, 2009 at 1:45pm

To my knowledge the bank watch list is not prevay to the general public where did you get this information

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Permalink Reply by Tim_Cleveland on February 26, 2009 at 6:32am

I don't have any information on who is on the watch list. As you say, it is not made public so as not to cause a run on the banks on the list and ensure their failure. Thinsk WAMU and Schumer predicting and thereby causing their failure. There are lists by independent organziations who purport to predict who might be on the list. The one right now that is gettign hyped is the one that measures the Texas Ratio.

I do know that the standard interval between examinations is 18 months and that some banks that have fails in 2008 and so far in 2009. Have begun to do poorly and then failed in this 18 month interval with no official regualtory action, not so much as an inforal board agreement, when they failed. This is pretty common knowledge.

Tim

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Permalink Reply by Tim_Cleveland on February 26, 2009 at 6:50am

Here is the text of an article from a newswire that I get each morning. The impression is growing that we will see a 100+ bank failure rate this year. I think what is interesting here, not only that it is mentioned, but that it is also glossed over, is that a byproduct of recent programs put forth by the current administration might actually encourage the regulators to shut the poor banks down faster than they actually would. What with new resources committed to these arms of the government. Maybe a good thing, maybe not.

Tim


U.S. Regulators Brace For Jump In Bank Failures

Wed Feb 25, 2009 7:45am EST

By Karey Wutkowski - Analysis

WASHINGTON (Reuters) - The rate of U.S. bank failures is expected to increase more than four-fold this year as federal regulators get fresh resources to handle insolvent banks, and as the Obama administration takes a more aggressive approach toward some banks' dismal prospects.

Bank analysts and industry insiders say a continued deterioration in credit conditions will be the driving force behind a big upswing in the number of failures, but policy decisions will also push the numbers up.

"I think people were surprised there weren't more last year, and I think that has to do more with the capabilities of the (Federal Deposit Insurance Corp) than the quality of the banks," said Richard Eckman, chairman of law firm Pepper Hamilton's financial services practice group.

The FDIC seized 25 banks last year. In just the first seven weeks of 2009, 14 banks failed and the FDIC is on pace to close more than 100 in 2009.

The agency is on a hiring spree and wants to triple its line of credit with the Treasury Department, better equipping it to close weak banks and find buyers for their assets.

"The FDIC has clearly stated that we expect an increase in our resolution activity as we work through this economic cycle," said FDIC spokesman Andrew Gray. "The prudent planning efforts by the FDIC over the last year and a half reflect this -- including additional hiring, contractor engagements and budget increases."

HOW MANY FAILURES?

The FDIC has also been freed from the shackles of a previous administration that may have delayed bank closures to increase confidence in the financial industry last year, said Ken Thomas, a bank consultant and economist based in Miami.

"There were many more banks that could have been closed," Thomas said. "What we've seen is a total ramping up in failures, a total new policy."

The FDIC and a bank's primary regulator have some latitude on when exactly to close an insolvent bank's doors. Declaring a bank failure sooner rather than later often minimizes taxpayer costs.

The small U.S. banks that failed in recent weeks could easily have been closed last June or September, said Thomas, who expects more than 100 bank failures in 2009.

Other predictions are more pessimistic. RBC Capital Markets said recently more than 1,000 U.S. banks -- or one in eight lenders -- may fail in the next three to five years.

FDIC's Gray said a bank's chartering authority generally makes the decision whether to close a financial institution, based on the condition of the bank and statutory requirements. U.S. banks can be chartered under a state banking regulator, or by the Office of Comptroller of the Currency, the Office of Thrift Supervision, or the Federal Reserve.

"The FDIC coordinates with bank regulators to project and plan for failures months ahead of time," Gray said. "There are times when a failure occurs as expected and times when they occur either earlier or later due to unexpected events."

The FDIC is clearly bracing for a flood of failures, and has revised upward the expected cost to its deposit insurance fund over the next three years.

LIST OF PROBLEM BANKS

On Thursday, the agency will release data on the state of the banking industry in the final quarter of 2008, including an update on the number of problem banks on its watchlist and how much money it is setting aside to handle future failures.

The number of problem banks -- banks that are under close scrutiny and often have weak capital cushions -- spiked in the third quarter to 171 from 117 at the end of the prior quarter. That marked the highest number since 1995 when federal regulators were wrapping up the savings and loan crisis.

Thomas said he expects the number of problem banks rose to about 200 at the end of the fourth quarter.

The FDIC will also release an updated figure on how much cash it has left in the Deposit Insurance Fund, an industry-funded reserve to back the deposits at FDIC-member banks, and how much it has provisioned for future failures.

The fund fell 23.5 percent in the third quarter to $34.6 billion. That amount included about $12 billion provisioned for failures it expected in the fourth quarter of 2008.

The FDIC said in December that it expected the fund to drop to about $29 billion at the end of the fourth quarter. The exact figure will be released on Thursday.

The FDIC is under pressure to protect the insurance fund as it grapples with a crisis that could easily exceed the savings and loan collapse when 1,386 lenders failed from 1988 to 1990, said Ronald Glancz, chairman of law firm Venable's financial services group and a former FDIC official.

Glancz sees up to 200 bank failures in 2009 as conditions deteriorate and private capital stays on the sidelines. "This is a much more serious crisis than the S&L crisis because it affects the entire financial market," he said.

The FDIC has been creative by extending liquidity programs and negotiating rescue deals or acquisitions for the largest banks on the brink of failure, Glancz said.

But the agency needs to also explore ideas like open bank assistance in which the FDIC could give incentives for private investors to jump into struggling banks. That would help prevent the damaging effects of bank failures, which can have a depressing ripple effect, similar to home foreclosures.

"A bank failure can really cause a crisis in the community," Glancz said.

(Reporting by Karey Wutkowski; Editing by Tim Dobbyn)

© Thomson Reuters 2009 All rights reserved

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