Banking Failures Continue
Banks are facing numerous problems in the current banking crisis. Mortgage defaults continue to rise to unprecedented levels, commercial loans are forecast to be the next black hole in bank balance sheets and loan volume continues to contract.
The FDIC has been closing banks at what appears to be a leisurely pace due to the difficulty in finding other institutions to take over failed banks, the fact that the FDIC Deposit Insurance Fund (DIF) is nearly depleted and perhaps the hope that an improving economy will allow problem banks to recover through earnings and the raising of additional capital.
Many of the banks that are finally closed by regulators appear to have been so capital deficient and unsafe that they should have been closed much sooner.
Given the numerous problems that many weakened banks face, it is not surprising that analysts foresee numerous additional banking failures. Consider the latest forecast of up to 200 additional banking failures:
NEW YORK (Reuters) – A prominent banking analyst said on Sunday that 150 to 200 more U.S. banks will fail in the current banking crisis, and the industry’s payments to keep the Federal Deposit Insurance Corp afloat could eat up 25 percent of pretax income in 2010.
Richard Bove of Rochdale Securities said this will likely force the FDIC, which insures deposits, to turn increasingly to non-U.S. banks and private equity funds to shore up the banking system.
“The difficulty at the moment is finding enough healthy banks to buy the failing banks,” Bove wrote.
Bove said “perhaps another 150 to 200 banks will fail,” on top of 81 so far in 2009, adding stress to the FDIC’s deposit insurance fund.
Bove said the FDIC will likely levy special assessments against banks in the fourth quarter of this year and second quarter of 2010.
He said these assessments could total $11 billion in 2010, on top of the same amount of regular assessments. “FDIC premiums could be 25 percent of the industry’s pretax income,” he wrote.
In May of this year, William Seidman, the late former head of the Resolution Trust Company, had mentioned that up to 500 bank failures could be possible in the current banking crisis.
“What’s more, the FDIC has to handle its regular duty of resolving bank failures. Most FDIC experts estimate that there will be a large increase in bank failures this year: between 100 and 500 additional failures, up from 25 failures last year. Bank failures, like the tides, wait for no man. When they happen the agency has to be ready”.
We will soon have a much better idea of the state of the banking industry’s plight with the upcoming release of the FDIC’s Quarterly Banking Profile. Based on many numerous reports that indicate continued deterioration in the banking industry, it would not be surprising if the number of bank closings continue to increase. The projected closing of 200 additional banks may well wind up being a conservative estimate.