Largest Banking Failure of 2009
The failure of BankUnited, FSB is the largest banking collapse of 2009 and marks the 34th FDIC insured bank to be added to the Failed Bank List.
The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $4.9 billion, leaving the DIF with a balance of only approximately $13 billion at this point. The DIF covers a massive $4.7 trillion in deposits at over 8,300 banks. The FDIC has recently taken steps to replenish the DIF including raising the deposit assessment at member banks and requesting an increase in the FDIC line of credit from the Treasury to $500 billion from $30 billion.
BankUnited had a total of $12.8 billion in assets. The FDIC is estimating their loss at $4.9 billion for a massive 38.3% of BankUnited’s assets. Many have questioned why the FDIC did not close down BankUnited sooner, considering that such a large percentage of their assets were severely impaired. BankUnited was critically under capitalized when finally closed.
Usually the FDIC prefers that failed banks be taken over by another banking institution but with such large losses in a very weak Florida real estate market, perhaps the FDIC could not find an institution willing to take over such a large bank. Ultimately, the FDIC allowed, for the first time, private equity investors to assume the assets and liabilities of BankUnited, FSB. The new owners of BankUnited will inject $900 million of capital into the successor bank and a large percentage of assets losses will be absorbed by the FDIC in a loss-share transaction.
BankUnited FSB – Largest Bank Failure Ever By Percentage Loss On Assets
Although BankUnited, FSB is not the largest banking failure of all time in terms of assets or total loss, it is the largest failure ever in terms of the percentage loss on the failed bank’s assets. As noted above, lossess on UnitedBanks assets total over 38% of total assets. If we look at the five biggest banking failures of all time, we can see that the BankUnited was the worst ever in terms of the percentage loss on a failed bank’s assets.
The two previous largest banking failures ever, in terms of loss to the FDIC, were Indy Mac Bank in July 2008 and American S&L in September 1988. Indy Mac’s loss to the FDIC at $8.9 billion amounted to 27% of assets and American S&L’s loss to the FDIC of $5.4 billion amounted to only 18% of assets. The utter devastation of the BankUnited asset portfolio is indicative of both the poor lending standards of the past 5 years as well as the severity of the real estate collapse in Florida.