Bank Failures in the U.S.

Bank Failures Accelerate, FDIC Sweats

Regulators shut down the bank owned by Illinois Treasurer Alexi Giannoulias' family on Friday, setting up an expected but daunting challenge in his bid to keep President Barack Obama's old Senate seat in Democratic hands. Broadway Bank, which was heavy into real estate loans and lost $75 million last year, had been given until Monday to raise about $85 million in new capital, but the Federal Deposit Insurance Corp. announced at the close of business Friday that Broadway was among seven banks, all in Illinois, that had failed... His Republican opponent, U.S. Rep. Mark Kirk, has made the bank's finances a central issue in the Senate race. "While years of risky lending schemes, hot money investments and loans to organized crime led to today's failure, it's a sad day for Broadway Bank employees who may lose their jobs due to Mr. Giannoulias' reckless business practices," Kirk spokeswoman Kirsten Kukowski said in a statement Friday night... Giannoulias' family could collect millions in tax refunds by writing off Broadway Bank's losses. Giannoulias said he wouldn't take advantage of a special provision made available in the stimulus bill for writing off businesses losses. He couldn't say if others in his family would, but said his family "will be taking a massive financial loss." - FDIC Shuts Down Seven Banks, All in Illlinois, The Associated Press, April 23, 2010

April 20, 2010

247walls - Bank closings hit eight last week bringing the total to 48 for the year. The rate of the failures is greater than in the previous two years. FDIC chief Sheila C. Bair recently said that she expected bank shutterings to peak in 2010.

Some of the closures could have been foreseen and perhaps avoided according to the U.S. Treasury Department’s inspector general Eric Thorson. Testifying before Congress last week, he said:

"We have found that time and again, the regulators for which we have oversight, the Office of Thrift Supervision (OTS) and the Office of Comptroller of the Currency (OCC), frequently identified the early warning signs…that could have at least minimized, if not prevented, the losses associated with the financial institutions’ failure but did not take sufficient corrective action soon enough to do so," according to Reuters.

The FDIC still may not have enough money to cover the failures. This is despite the fact that it has already required the institutions that it insures to pay their dues through 2012 when the agency ran low on money in September 2009. The only recourse the FDIC had otherwise was to go to the Treasury Department for money. The prepayments brought the FDIC $45 billion.

Now, however, the pace of failures is on a much steeper curve than it was last year.
After the $45 billion came in Bair said that the total cost to fund failed banks could rise to $100 billion between 2009 and 2013. The FDIC cannot go to its member banks to get them to prepay fees again, and that means the taxpayer is the only source of funds to handle the costs of shuttering these financial firms. Treasury Secretary Tim Geithner recently said that the government will only lose $89 billion on the TARP, much below the $356 billion Congress estimated just a year ago.

Geithner spoke too soon. The banking crisis is not over at all. The problem has just moved from megabanks to smaller institutions.

FDIC Chief Expects 2010 Bank Failures to Exceed 2009

January 26, 2010

South Florida Business Journal - Reacting to President Barack Obama’s recent proposal to impose limits on the size and scope of banks, Federal Deposit Insurance Corp. Chairwoman Sheila Bair said during a visit to Miami on Monday that institutions should wall off their non-bank financial activities from their insured deposits.

On Thursday, Obama said he wants to prevent financial institutions that own a bank from also owning, investing in or sponsoring a hedge fund, private equity fund, or proprietary trading operations that are not related to serving their customers. The president also said that large financial firms could not increase their national market share of assets other than insured deposits beyond a certain point.

Just before speaking to the Florida Bankers Association on Monday night, Bair said she hasn’t seen enough details of Obama’s proposal to say whether she supports it or not. She said financial institutions could do a better job of walling off their FDIC-insured banks from some of their more risky financial activities so the banks aren’t hurt by losses in those areas.

“The bulk of these problems actually occurred outside the insured deposit banks," Bair said. "Just look at Lehman Bros. and AIG."

She noted that large institutions should have a self-liquidation plan filed with regulators in case they need to be wound down.

Bair, who plans to leave office after her term expires next year, said the number of bank failures this year should exceed the 140 failures that occurred in 2009. Fourteen of those bank failures occurred in Florida. The FDIC has projected that bank failures would cost its insurance fund about $100 billion from 2009 through 2013.

Since some of the troubled banks are fairly small, Bair said the FDIC might package them to attract more bidders.

The FDIC reported 522 banks holding $345.9 billion in assets on its “problem list” as of Sept. 30. Bair did not know how many were in Florida, but acknowledged that this state has been hit harder than many others.

“In any of the boom markets [of the country], they suffer the most when the boom becomes a bust,” Bair said. “But, there are a couple of positive trends in Florida.”

Bair pointed to increased home sales volume and slightly better employment numbers as reasons Florida might fare better than other former boom states this year. On Monday, Florida Realtors reported statewide existing home sales rose 31 percent, year-over-year, in 2009.

Just as Florida’s economy is hurting more than in most states, so are its banks. Florida is home to 15 banks considered “undercapitalized” by FDIC capital ratio guidelines based on their Sept. 30 reports.

On Friday, Miami-based Premier American Bank became the first Florida bank to fail this year. This was the first time that a “shelf charter” set up by a private equity fund specifically to buy a failed bank won a bid. Bair noted that these private equity deals have special conditions: They have heightened capital requirements at the bank and they can’t sell the institution for three years. They must follow the same community reinvestment rules as other banks, she noted.

Bair said the FDIC has increased the frequency of bank examinations and it has placed an increased emphasis in analyzing whether banks have properly reserved to cover future loan losses. In December, the FDIC said it would increase its staffing level to 8,653 this year from 7,010 in 2009.

“There are some sad cases of long-standing community banks that had to be closed,” Bair said. “It’s not a happy thing to close a bank, but we’ve learned the hard way that if you put it off, it will only cost more later.”