Feds Close Two Banks In Washington and Illinois – Depositor’s Concerns Grow

Regulators closed two banks today, bringing the total number of banking failures for the year to 63.

The FDIC classifies 888 banks as “Problem Banks”, a number which has risen nonstop since 2006.  The number of troubled banks comprise almost 12% of all federally insured institutions.  With many analysts forecasting another recession, a further increase in the number of problem banks could become a major problem for the FDIC.

Although the FDIC has liquid resources of $45.5 billion, they insure $6.4 trillion dollars of deposits.  In addition, the Deposit Insurance Fund which is used to fund losses on bank closings, has had a negative fund balance since September of 2009.

If the failure of one large systemically important institution were to occur, especially so soon after the banking collapse of 2008, depositor panic could result in a run on many banks.  Not helping confidence is the weak state of the European banking system which is seeing large withdrawals from panicked depositors.  Any large scale banking panic in Europe will quickly spread to the United States.

Compounding fears over the fragility of the banking system was the announcement today by S&P that the credit rating of the United States was downgraded.  Concerns about the ability of the United States to contain another financial meltdown could easily shatter whatever confidence is left by US creditors and American banking depositors.

The two banking failures for the week ending August 5, 2011, are listed below.  Please click on the link for detailed information.

Bank of Shorewood, Shorewood, IL – Banking Failure #62

Bank of Whitman, Colfax, WA – Banking Failure  #63