Regulators closed four banks in four different states this week. As has been typical for 2011, three of the failed banks were small or mid sized with total assets under $250. The largest bank failure of the week was Lydian Private Bank of Florida with $1.7 billion in assets, which became the fifth largest banking failure of 2011.
There have now been a total of five bank failures this year in which the total assets of the failed bank exceeded $1 billion. The year’s largest bank failure was Superior Bank of Alabama which had total assets of almost $3 billion.
Collectively, this week’s four failed banks had total assets of $2.0 billion and resulted in losses to the FDIC Deposit Insurance Fund of $363.8 million. Increased investor anxiety over the health of the global banking system contributed to the large sell offs in global stock markets. There are legitimate concerns that the largest US banks will need to raise additional capital if loan defaults start to soar as the economy slows to a crawl and unemployment numbers get worse.
News today that the Swiss National Bank turned to the Federal Reserve for short term funding of $200 million helped to fuel rumors that other large European banks are experiencing funding problems. In addition, the exposure of large US banks to banking problems in Europe though credit default swaps and other derivative products remains unquantified and a cause for concern. The worldwide linkage of banks and financial markets guarantees that if European banks start to topple, financial fallout will quickly spread to the US.
A slow or recessionary economy will cause major financial stress for the US banking industry, especially for the 888 banks that are already on the FDIC Problem Bank List. Banks that might have survived in previous down cycles seem to have little chance of recovering this time due to declining property values and the inability to raise new capital from investors.
The four failed banks for the week ending August 19, 2011 are listed below. Please click on the link for detailed information on each failed bank.
Bank Failure #65 – Public Savings Bank, PA
Bank Failure #66 – Lydian Private Bank, FL
Bank Failure #67 – First Southern National Bank, GA
Bank Failure #68 – First Choice Bank, IL