Bank failures are piling up
I’m guessing the FDIC has told its employees what they’ll be doing on Friday nights for a long time to come. So far this year, the government has seized 115 banks, the most in a year since 1992. Nine were taken over last Friday, including one downstairs from Marketplace.
Nine banks in one day is the most so far this year. US Bank was handed the keys to 153 branches in California, Illinois, Texas and Arizona. They were all divisions of a Chicago-based bank called FBOP Corp. 68 of the branches belonged to Cal National, which shares a building with Marketplace.
I wasn’t around to see it, but I hear this place was crawling with feds. From AP:
About 100 FDIC employees arrived at the CalNational headquarters in downtown Los Angeles around 6:15 p.m. They were seen fanning out into various offices around the building, a squat concrete structure that prominently displays the failed bank’s name.
Like so:
Most likely, this is only the beginning:
While the pounding from losses on home mortgages may be nearing an end, delinquencies on commercial real estate loans remain a hot spot of potential trouble, regulators say. If the recession deepens, defaults on the high-risk loans could spike. Many regional banks, especially, hold large concentrations of these loans…
The number of banks on the FDIC’s confidential “problem list” jumped to 416 at the end of June from 305 in the first quarter. That’s the most since June 1994. About 13 percent of banks on the list generally end up failing, according to the FDIC.
Not to worry, the money deposited in these banks is safe, insured by the FDIC — for the time being, anyway. The FDIC is being bled dry, but it has asked about 8,000 banks to pay in advance the premiums that would’ve been due over the next three years, in order to replenish its fund. The FDIC can also tap a credit line at the Treasury, although it’s been reluctant to do so because that would be borrowing from the taxpayers. Perish the thought.
US Bank hasn’t said what will happen to the employees of the branches it just obtained. But clearly, there are some new people working downstairs. I overheard bank employees discussing where they could get breakfast around here. The cafe downstairs flips some nice pancakes.
But flipping houses has turned into flipping banks.
- Nov 2, 2009 10:29 AM — Scott Jagow
- 5 comments
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Comments (5)
November 2, 2009 10:58 AM PT
How many “Cal Nationals” does it take to equal a “Bear-Stearns” or a “Lehman Bros.” or a “Citi” ??
I suspect, that the Big banks are SO big that these little failures will barely make a ripple.
November 2, 2009 11:11 AM PT
I’m not sure it only makes a ripple. But it’s true that the big banks are only getting bigger as they’re handed the keys to the smaller ones.
November 2, 2009 4:08 PM PT
About 40 years ago the convention wisdom was that 14,000 banks was too many. Europe surely has too few. What is the “juste milieu?” Should there simply be a limit on how big a bank can be?
November 3, 2009 7:26 PM PT
” how big a bank can be? “
I’d have to look it up to be sure; but as I remember it, the idea 20 years ago was for a corporate structure to be large enough to prevent corporate raider from pouncing for the green-mail or for hostile takeover for purpose of cannibalizing assets. Anymore, I don’t think that this is a valid reason to promote unlimited acquisitions and growth. For example, computer programs are usually built from small modules called objects which are easier to debug. Isolated they run ever faster and more dependable with local parameters totally hidden from outside objects. When called the subroutine returns a value which in some cases is simply “void”. Could completely isolated self contained banks be more efficient than the mega-pyramids controlled by bank holding companies? Could the holding companies simply morph into software companies turning out bank software for the smaller modular banks, for Bob’s Bank at the corner of Wall Street and Beaver Avenue?
U B Judge !
November 2, 2009 5:04 PM PT
Simon Johnson and James Kwak have lots of commentary on the TBTF (too big to fail) issue on their website, www.baselinescenario.com