A Taxing Time for Troubled Banks
Me? I'm thinking of the pace of failed banking institutions we've seen so far this year - and wondering just how much we're taxing the FDIC's insurance fund.
Don't know if you've been paying attention. It seems every week we're publishing a new story like this: Two More Banks Fail
There were 25 total bank failures in all of 2008 - most of those coming during the last, brutal quarter of the year. Just over one-fourth of the way into 2009, we've nearly matched that number.
This week's news is about the New Frontier Bank, Greeley, CO, and the Cape Fear Bank, Wilmington, NC, both of which were shuttered by regulators last Friday (Good Friday, indeed).
Referenced almost as an afterthought in that story: These were the 22nd and 23rd banks to fail so far in 2009.
To put that in perspective: There were 25 total bank failures in all of 2008 - most of those coming during the last, brutal quarter of the year. Now, just over one-fourth of the way into 2009, we've nearly matched that number.
I'm not saying we're going to set any new records this year. Only that we're on pace for, shall we say, a "busy" year. Which only makes sense, given the state of the economy and what we know about banking institutions that have struggled because of fallout from the subprime mortgage debacle.
It's worth pointing out, too, that there have been only two credit union failures so far in 2009, well within the range of the 15 total CU failures in 2008. What I see and hear from leaders of these institutions is that credit unions are enjoying a bit of a revival among consumers looking for new banking options. This may well be a healthy year for the credit union industry.
But coming back to the banks, what I find most noteworthy is the number of failures being absorbed by the FDIC. It used to be that when the bank failure notice got issued at 5:01 p.m. on a Friday evening, it was soon followed by - often preceded by - a notice that such-and-such other institution had acquired all deposits of said failed bank.
Now, more frequently, we're seeing notices like:
- "The FDIC created a Deposit Insurance National Bank (DINB) to resolve and close the troubled bank" - in other words, "no immediate buyer."
- "The FDIC and X bank entered into a loss-share transaction on $395 million of Y bank's assets" - AKA a partial sale.
- "The acquiring bank bought the failed bank's assets of $X million at a discount of $Y million" - it's a buyer's market.
- And then the old standby: "The cost to the FDIC's Deposit Insurance Fund is $XX million."
Well, I just did my own tally, and here's what 2009's 23 failed institutions are estimated to cost the fund: $3,068,000,000.
And that's a conservative estimate (one of the failed banks was estimated to cost the fund between $120 and $145 million, and I took into account the lower number).
That's a serious chunk of change, and you know exactly where it's coming from - the premiums that all banks pay into the FDIC's fund. Talk about the high cost of doing business.
I don't point this out to alarm anybody. And I'm not saying we're going to see a greater rash of bank failures, or that the FDIC is in any danger of exhausting its resources. I mean, this is the U.S. 'Year of the Bailout,' right? The FDIC will be fine.
I'm just saying that as April 15 dawns, this year already has been taxing in a lot of ways, and the nation's banks know this as well as anyone.