Bank Failures in the U.S.

Problem Bank List Tops 300

May 27, 2009

CNNMoney - The government's list of troubled banks swelled in the first quarter, climbing to its highest level in nearly 15 years, regulators said Wednesday.

The Federal Deposit Insurance Corp. said that the number of lenders on its so-called "problem bank" list jumped to 305 during the first three months of 2009, from 252 in the fourth quarter of last year. This is the highest level of troubled institutions since 1994.

Banks deemed troubled by regulators typically face difficulties with their finances or have operational or management issues that pose a threat to their existence. Lenders that land on the list are considered the most likely to fail, although few actually reach that point. On average, just 13% of banks on the FDIC's problem list have failed.

Regulators never disclose the names on the list out of fear that depositors at those institutions may prompt a so-called "run on the bank." They do, however, provide the number of assets controlled by those institutions. In the first quarter, that number climbed to $220 billion, up from $159 billion as of the end of last year.

The sharp increase in asset size for troubled banks could be attributed to the inclusion of BankUnited (BKUNA), a Florida-based lender which oversaw nearly $13 billion in assets. Regulators shuttered the thrift last Thursday, and immediately sold much of its assets to a group of private equity firms.

So far this year, 36 banks have failed, including BankUnited. It is widely expected that many more banks will fail this year as banks of all sizes cope with rising loan losses as a result of the ongoing recession.

Even as the pace of failures quicken, it would be hard to match what happened during the savings & loan crisis two decades ago. More than 1,900 financial institutions went under during 1987-1991, peaking with the failure of 534 banks in 1989.

In the event of a failure, the FDIC fully insures individual accounts up to $250,000 for single accounts. But the recent uptick in bank failures has taken a toll on the fund the FDIC uses to backstop consumer and corporate bank accounts...

Despite setting aside $61 billion for future loan losses, the more than 8,200 firms that make up the nation's banking industry managed to stay profitable in the first quarter. The FDIC said banks collectively reported a net profit of $7.6 billion, compared to a loss of $26.2 billion in the fourth quarter of 2008...

Florida's BankUnited Fails, Will Cost FDIC $4.9B

May 21, 2009

AP - The federal seizure of struggling Florida thrift BankUnited FSB is expected to cost the Federal Deposit Insurance Corp. $4.9 billion, representing the second-largest hit to the FDIC's insurance fund since the financial crisis began felling banks last year.

The costliest was last year's seizure of California lender IndyMac Bank, on which the bank insurance fund is estimated to have lost $10.7 billion.

The Office of Thrift Supervision, a Treasury Department agency, said Thursday that BankUnited FSB reported $1.2 billion in losses last year as defaults on loans piled up. The thrift "was critically undercapitalized and in an unsafe condition to conduct business," the agency said in a statement.

Coral Gables, Fla.-based BankUnited FSB is the 34th federally insured institution to be closed this year, and the biggest. Florida's largest banking institution with about $13 billion in assets as of May 2 was sold for $900 million to an investor group led by former North Fork Bancorp Chairman and CEO John Kanas. It will reopen as a newly chartered savings bank called BankUnited on Friday, with Kanas at the helm.

The investor group includes several prominent firms: the Blackstone Group, the Carlyle Group, Centerbridge Partners, and WL Ross & Co., the private-equity firm run by billionaire investor Wilbur Ross.

The new bank will assume $12.7 billion in assets and $8.3 billion of its total $8.6 billion in deposits. In addition, the FDIC and the new bank agreed to share losses on about $10.7 billion in assets. Deposits will be insured by the FDIC, and customers can continue to use BankUnited FSB checks, ATM cards and debit cards, the FDIC said.

The failed bank's parent was BankUnited Financial Corp. It had 1,083 employees and 85 branches, all in Florida, mostly located along the state's southeast coast.

The 34 bank failures this year in the U.S. compare with 25 in 2008 and just three in 2007. As the economy nationwide has soured, amid rising unemployment, tumbling home prices and soaring loan defaults, bank failures have cascaded and sapped billions out of the deposit insurance fund. According to the most recent data available, the fund now stands at its lowest level in nearly a quarter-century — $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.

The FDIC expects that bank failures will cost the insurance fund around $65 billion through 2013.

The FDIC has planned to impose a new emergency fee on U.S. banks to replenish the fund. Legislation passed by Congress this week boosts the FDIC's authority to borrow from the Treasury Department if needed from $30 billion to $100 billion, allowing the agency to reduce the amount of the insurance fees.

The failure of IndyMac, which had $32 billion in assets, was the second-largest last year, trailing only the September collapse of Washington Mutual Inc.

Thrifts have been the most troubled regulated institutions during the financial crisis and among the most spectacular failures. By law, they must have at least 65 percent of their lending in mortgages and other consumer loans — making them particularly vulnerable to the housing downturn. Seattle-based thrift Washington Mutual was the biggest bank to collapse in U.S. history, with around $307 billion in assets. It was later acquired by JPMorgan Chase & Co. for $1.9 billion.

Two More Banks Fail, Lifting This Year's Tally to 23

April 10, 2009

AP - ...This year's tally of 23 bank failures is nearing the total for all of 2008, when 25 U.S. banks were seized by regulators. Two of the nation's largest savings and loans failed that year: Washington Mutual Inc. and IndyMac Corp.

A growing number of banks are becoming insolvent as home prices fall and unemployment rises, causing more individuals and businesses to default on their debt.

The FDIC estimated that the closure of Cape Fear Bank will reduce the federal deposit insurance fund by $131 million, and that the closure of New Frontier Bank will lower it by another $670 million.

As of the end of 2008, the insurance fund stood at $18.9 billion - the lowest level in nearly a quarter-century, and down from $52.4 billion at the end of 2007. The FDIC expects that bank failures will cost the insurance fund about $65 billion through 2013.

The FDIC fund operates by charging financial institutions, not with federal tax dollars. The agency has been increasing fees and premiums in an effort to replenish the fund.

At the end of 2008, the FDIC had 252 banks and thrifts on its list of troubled institutions, up from 171 in the third quarter of last year.