U.S. Banks Failing At Fastest Pace In 2 Decades

[TampaYankee]

U.S. Banks Failing At Fastest Pace In 2 Decades

MARCY GORDON, Associated Press | AP First Posted: 11- 6-10 02:11 PM | Updated: 11- 6-10 02:11 PM

WASHINGTON -- Regulators shut down four more banks Friday, bringing the 2010 total to 143, topping the 140 shuttered last year and the most in a year since the savings-and-loan crisis two decades ago.

The Federal Deposit Insurance Corp. took over K Bank, based in Randallstown, Maryland, with $538.3 million in assets, and Pierce Commercial Bank, based in Tacoma, Washington, with $221.1 million in assets. The FDIC also seized two California banks: Western Commercial Bank in Woodland Hills, with $98.6 million in assets, and First Vietnamese American Bank in Westminster, with assets of $48 million.

M&T Bank, based in Buffalo, N.Y., agreed to assume the deposits and $410.8 million of the assets of K Bank. First California Bank, based in Westlake Village, Calif., is acquiring the assets and deposits of Western Commercial Bank. Heritage Bank, based in Olympia, Wash., is taking the assets and deposits of Pierce Commercial Bank, while Los Angeles-based Grandpoint Bank is assuming the assets and deposits of First Vietnamese American Bank.

In addition, the FDIC and M&T Bank agreed to share losses on $289 million of K Bank's loans and other assets. The FDIC and First California Bank are sharing losses on $83.9 million of Western Commercial Bank's assets.

The failure of K Bank is expected to cost the deposit insurance fund $198.4 million. That of Western Commercial Bank is expected to cost $25.2 million; Pierce Commercial Bank, $21.3 million, and First Vietnamese American Bank, $9.6 million.

Like these four financial institutions, the banks that have failed this year are smaller, on average, than those that succumbed in 2009. That has meant the deposit insurance fund has suffered a milder loss, which has reached about $21 billion so far this year, compared with $36 billion in 2009.

Still, banks, especially small community institutions, are falling as soured loans have mounted and the economy has sputtered. The wave of closings points to the lingering power of the recession more than a year after its official end.

Florida, Georgia, Illinois and California have each seen bank failures in the double digits this year. Some communities in those states are still reeling from the financial meltdown that brought an avalanche of bad loans, especially for commercial real estate.

The closures have compounded the problems in areas already straining under high unemployment, foreclosed homes and vacant malls and office buildings.

The pace of failures has accelerated as banks' losses on loans for commercial property and development have mounted. Many companies have shut down in the recession, vacating shopping malls and office buildings financed by the loans. That has brought delinquent loan payments and defaults by commercial developers.

The 2009 total of bank failures had been the highest annual toll since 1992, at the height of the savings and loan crisis. More than 1,000 banks went under in the savings-and-loan crisis of 1987-1992.

Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007.

The growing bank failures have sapped billions of dollars out of the FDIC's deposit insurance fund. It fell into the red last year, and its deficit stood at $15.2 billion as of June 30.

The FDIC expects the cost of resolving failed banks to total around $52 billion from 2010 through 2014.

Depositors' money -- insured up to $250,000 per account -- is not at risk, with the FDIC backed by the government. That insurance cap was made permanent in the financial overhaul law enacted in July.

See original article at:

http://www.huffingtonpost.com/2010/11/06/us-banks-failing-at-faste_n_779941.html

[TampaYankee]

It ain't over til its over and it ain't over yet.

[MsGuy]

Many bank failures don't get reported as such. One smallish regional bank here just pulled a surprise weekend merger with a larger regional bank. The "merger" valued it at something south of two bucks a share (Three years ago it was in the mid-twenties).

Near as I can figure, early last summer the FDIC put a gun to their head and said "Bolster your capital or we're pulling the trigger." Given its substantial problems with ill advised commercial real estate loans in Memphis, senior management (as clueless a bunch as you would ever want to meet) was unable to raise new capital.

Now this merger is not gonna show up in the stats as a bank failure but for all practical purposes it was. The only difference was that the FDIC stepped in while they could still find a bank willing to take over the problem without a guarantee from the Feds.

So as TY says, "It ain't over yet."

[Guest Conway]

Many bank failures don't get reported as such. One smallish regional bank here just pulled a surprise weekend merger with a larger regional bank. The "merger" valued it at something south of two bucks a share (Three years ago it was in the mid-twenties).

Near as I can figure, early last summer the FDIC put a gun to their head and said "Bolster your capital or we're pulling the trigger." Given its substantial problems with ill advised commercial real estate loans in Memphis, senior management (as clueless a bunch as you would ever want to meet) was unable to raise new capital.

Now this merger is not gonna show up in the stats as a bank failure but for all practical purposes it was. The only difference was that the FDIC stepped in while they could still find a bank willing to take over the problem without a guarantee from the Feds.

So as TY says, "It ain't over yet."

That's actually a good thing, Ms.Guy. It is essentially a bank failure where the equity holders take the bigger hit versus the US Taxpayer. IUts being referred to as a "takeunder". The government gets a portion of its TARP money (that would have been totally lost in a bank failure)back and the stockholders take the loss on the share price.

That's the way it should be.

[MsGuy]

I couldn't agree more, Conway. And the takeover has the added bonus for us of folding our local bank into an entity with competent senior management. (cross fingers, knock on wood)

My point was only that a lot of bank failures don't show up as such in the headline statistics.

[Guest Conway]

In 2011, the FDIC loss shares, which have been as high as 90% on loan portfolios sold on failing banks, will drop to 60%. That will make "takeunders" far more attractive to purchasers and will be better for the taxpayer.

At the end of the day, TARP will be deemed a success by history and the FDIC will deserve a pat on the back for pulling the system back from the brink of panic in 2008, then adjusting the loss shares to the benefit of the taxpayer once the system stabilized.

[lookin]

Anybody know how many banks we need?

And, if we exclude the ones that hold onto our money at near-zero interest and don't lend any of it out, would the number go lower?

[Guest Conway]

Lookin', I worked in the industry for 23 years and I am now working as a consultant to it.

I cannot tell you how many of my banking clients would like nothing better than to be lending money right now. But, there simply is little to no demand for it. Right now, many are sitting on cash and getting .27% (that's 27/100ths of 1%)lending it overnight to other banks at LIBOR through the Fed's interbank window.

They would kill for a prime plus one return on that money right now. Business, at least credit worthy business, is really hesitant to borrow and spend these days.

[lookin]

Thanks for the insight, Conway.

It seems like everyone wants to get our economy moving again, but no one wants to actually pull the trigger.

I watched President Obama on 60 Minutes last night and heard him mention all the infrastructure projects that need to be done and are ready to be done. It sounded like he thought it would be a good idea for the feds to put some money into infrastructure. With firm contracts in hand, I can see some small business owners going to the banks for money for equipment and for new hires.

But I can also hear those who would rail against more government spending and increased deficits.

What do you think? Are we in for more rhetoric from the government, or could they actually create a few new jobs while we're waiting for the economy to improve?

[Guest Conway]

Thanks for the insight, Conway.

It seems like everyone wants to get our economy moving again, but no one wants to actually pull the trigger.

I watched President Obama on 60 Minutes last night and heard him mention all the infrastructure projects that need to be done and are ready to be done. It sounded like he thought it would be a good idea for the feds to put some money into infrastructure. With firm contracts in hand, I can see some small business owners going to the banks for money for equipment and for new hires.

But I can also hear those who would rail against more government spending and increased deficits.

What do you think? Are we in for more rhetoric from the government, or could they actually create a few new jobs while we're waiting for the economy to improve?

I think that this would be a wonderful way to create jobs except for two things:

1. Our federal government is in debt up to its eyeballs.

2. The current administration has shown in its "stimulus" plan that it really doesn't understand the difference between creating government jobs to spur the economy and spending wrecklessly on the extension of entitlement plans that we as a nation simply cannot afford.

Creation of jobs needs to be left to the private sector. Downsizing of the federal bureaucracy and the costs associated with running it need to be brought under control. For the sake of future generations.

[lookin]

Creation of jobs needs to be left to the private sector.

I'm very interested in learning how you see this process unfolding, and over what period of time.

Right now, my feeling is that jobs that communities can see being created in the next six-twelve months would make them feel better about shooing away the bedbugs and taking some cash out of the mattress. It seems that would get the economy started as quickly as anything else I can think of. But I'm definitely looking for other ideas if this one turns out to be a stinker.

As you say, it does seem that any government-funded jobs program would increase the deficit in the short term. But it also seems that an improving employment rate would get money flowing again, and eventually some of it would turn into taxes that could be used to pay down the deficit. Hasn't TARP turned nearly deficit-neutral in a fairly short time?

I've heard people say that extending the Bush tax cuts on the wealthy would be another way to increase employment, although, as President Obama pointed out on 60 Minutes last night, doing so would indeed add another $700 billion to the deficit.

Since I'm not as terrified of deficits as many folks are, I think I'd go along with one of my favorite commentators, Dave Ross, who recommended only half-jokingly that tax cuts for the wealthy be extended for another two years. If the unemployment rate does decrease to a certain bogey in two years, the tax cuts stay extended. If it doesn't, they don't. What do you think of that idea?

Sorry, Conway, for directing all my questions to you. I'd also love to hear what others think. There are some very knowledgeable folks here.

[Guest Conway]

I'm very interested in learning how you see this process unfolding, and over what period of time.

Right now, my feeling is that jobs that communities can see being created in the next six-twelve months would make them feel better about shooing away the bedbugs and taking some cash out of the mattress. It seems that would get the economy started as quickly as anything else I can think of. But I'm definitely looking for other ideas if this one turns out to be a stinker.

As you say, it does seem that any government-funded jobs program would increase the deficit in the short term. But it also seems that an improving employment rate would get money flowing again, and eventually some of it would turn into taxes that could be used to pay down the deficit. Hasn't TARP turned nearly deficit-neutral in a fairly short time?

I've heard people say that extending the Bush tax cuts on the wealthy would be another way to increase employment, although, as President Obama pointed out on 60 Minutes last night, doing so would indeed add another $700 billion to the deficit.

Since I'm not as terrified of deficits as many folks are, I think I'd go along with one of my favorite commentators, Dave Ross, who recommended only half-jokingly that tax cuts for the wealthy be extended for another two years. If the unemployment rate does decrease to a certain bogey in two years, the tax cuts stay extended. If it doesn't, they don't. What do you think of that idea?

Sorry, Conway, for directing all my questions to you. I'd also love to hear what others think. There are some very knowledgeable folks here.

I think that business people, at least those that I talk to, have been hesitant to invest in job creation over the last two years due to concerns regarding taxes and the regulatory environment with the Democrats controlling both the White House and Congress, They have been holding onto their capital in expectation that the cost of doing business was going to get more expensive due to those two things.

Now, that there is the possibility that these two issues can be controlled by the lack of a super-majority in the Senate and a house controlled by the GOP, I think that companies may be more willing to hire than they were before.

There is still a great deal of uncertainty in the economy right now. However, I absolutely believe that this contraction can and will be corrected by the creation of full time jobs.

Interest rates are at historical lows right now. So, that piece of the puzzle as to how to solve this crisis is in place. Businesses that survived the crisis learned to do so by being very lean and very efficient. Right now, the only piece missing from a real meaningful recovery beginning.

Do the Bush tax cuts matter? In a symbolic way they do because the wealthy see Obama, and to a certain degree, Democrats as having been completely inflexible on this and other issues that entrepreneurial types deem important for the last two years.

Will they cause the deficit to grow? Yes, in the immediate term. Will they create new jobs? Directly, No. But, extension of them will send the message to business that this administration now has a degree of flexibility with regard to the issues that are important to them that it has not demonstrated for the last two years. Should there be some job production caveat associated with the extension? I don't think so because I think that it holds the subjects of that caveat hostage and has them saying, "well, let's see what happens in two years before we invest the capital we have been sitting on."

The message that this administration will send via this decision is critical to the companies commencing to spend the capital on which they have been sitting to buy new machinery, and start plant overhauls to further increase efficiency. These projects will create the jobs that will create the tax base that will offset the temporary increase in the deficit caused by extension of the Bush Tax cuts.

Those jobs will create the base consumer spending to cause companies to ramp up manufacturing thus creating more jobs in the future.

It is a cycle that produces positive results on a compound level. The more success that companies see in their revenue lines, the more likely they are to ramp up production and create new jobs.

Dealing with the deficit on a long term basis is another story that will require much more discipline.

[lookin]

I've tried to follow all the debates about what would get lenders to lend and businesses to hire and am starting to come to the conclusion that the discussions are likely to go on endlessly. Some think tax cuts will inspire business owners to hire, some think rolling back regulations will do the trick, and still others believe that a strong 'message' from Washington is what's needed to start creating jobs. The difficulty for me is that I haven't heard anything in the way of how many jobs and when they might start to appear.

Somebody gave me an envelope the other day, and I've been running some numbers on the back just for fun. Somewhere I read that it will take the creation of 300,000 jobs a month to begin bringing down the unemployment rate. I don't know what kind of jobs those would be, so I pencilled in an average U. S. living wage of $2,000 a month, which would, of course, vary according to geography. That got me to a payroll of about $87 billion annually. (3,600,000 jobs annually * $24,000 a year) Since these folks would be back at work, many would not need to collect unemployment benefits any more, so I rounded down to an even $70 billion a year to create the 300,000 jobs a month that would start bringing down the unemployment rate.

Interestingly, if I accept the government's estimate that extending the Bush tax cuts on the wealthiest Americans would cost $700 billion over ten years, that equals exactly the $70 billion a year that I estimate would cover the cost of putting 3,600,000 Americans back to work.

Must confess, I'm one of those folks who really likes to see problems fixed, rather than just debated forever. I don't mind discussing them first but, after a while, I get the strong urge to actually do something. So, if I had to choose between hoping that $70 billion in tax cuts for the wealthy would maybe lower the unemployment rate at some time in the future and knowing that $70 billion in direct wages would start to do so within a year, it becomes a no-brainer for me.

And, yes, it would require another government program similar to Roosevelt's WPA and we could continue to debate big government vs. small government for another few years but, for me, there's a definite appeal in actually seeing people go back to work soon.

Besides, look at some of the nice stuff that came out of the WPA.

[Lucky]

Lookin, I appreciated your work on the envelope. When I listen to Conway speak of business, it makes sense when I think of the small businessman struggling to turn a profit and meet his payroll. But big business seems to be awash in profits,with CEOS making record salaries. These companies know how to lobby Congress, hide their profits, and generate money beyond their needs. Taxing them only makes sense to me.

Your point about the guarantee of using $70 billion a year for new jobs versus a possible trickle down from the Bush tax cuts is unassailable. IMHO.

[lookin]

Thanks. Conway makes a lot of sense, as you say, and I pay close attention. He has a direct line to an important part of the solution.

I find it often helps the debate when actual proposals are on the table, and I like putting them out there. Often, they are shot right down, as I expect this one will be. But being derided, so to speak, is a small price for me if it helps to get other concrete ideas on the table. I welcome a process that draws out all the objections, until there's nothing left but something that could work.

The worst outcome for me is one in which we're left with nothing but objections. That's what the political landscape has been littered with recently, and I think it's time we start moving forward.