It seems that just about every Friday evening we hear about another bank that’s had its assets seized by the Federal Deposit Insurance Corporation for being insolvent. The amount of money that the bank has isn’t enough to cover the amount of deposits that its customers have, so the FDIC engineers a purchase by a larger bank to make sure that depositors can access their money if it needs to.
As of August 24th of 2009, there have been 80 banks that have failed in the United States in 2009—and more are coming. Federal regulators are ramping up their efforts to seize troubled banks and small Banks are going to be hit especially hard. In a recent article on ThteStreet.com, Frederick Cannon, Keefe Bruyette & Wood’s co-director of research, stated “The government’s gotten to the point now where they’re comfortable with allowing failure to be an option.” Cannon estimated that a total of 150 of the nation’s 8,000 banks will fail in 2009.
Another analyst painted a bleaker picture. Richard Bove, who is the senior vice president of equity research at Rochdale Securities, estimates that there will be another 150-200 bank failures within the next 12 months. The report that Bove filed studied whether or not the Federal Deposit Insurance Corporation’s insurance fund would have the capacity to meet the continued challenges of the nation’s financial crisis. In a recent Forbes article, Bove stated, “If a large enough number of these banks must fail, the FDIC will need more money to do its job.”
Another well-known analyst, Meredith Whitney, estimates that there will be up to 300 banks that fail because of the sub-prime mortgage crisis. Between 2008 and 2009, there have been 106 banks which have been shut down because they are illiquid, largely because the value of the real estate and real estate securities on their books has dropped significantly.
We recently reported that the Federal Reserve would need 25% of all US Banking profits in 2010 to make sure that its deposit insurance fund would be able to cover all of the coming bank failures. Although analysts don’t agree as to exactly how many bank failures are coming, they do agree that many more are coming.
