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In 2010, 157 banks were closed, a pace of about 3.0 banks per week

Guest post by: Carl Moore

Article Overview: The Federal Deposit Insurance Corporation oversaw the closing of six banks on Friday, April 15. This brings the total for 2011 up to 34 banks, a pace of about 2.3 banks per week. The problem bank list published by the FDIC every quarter rested at just under 900 banks (out of 6,529 banks in the banking system) on December 31, 2010. The other number that is important is the number of banks that were acquired or merged into other banks. Last year there were 153 banks dropping out of the industry due to such consolidations. Thus, the number of banks in the commercial banking system declined by 310 units last year or at a rate of approximately 6.0 banks leaving the system per week.

In 2010, 157 banks were closed, a pace of about 3.0 banks per week

Most of the banks dropping out of the banking system are smaller institutions. However, last week a $3.0 billion bank was closed so it is not all just the very smallest banks that are leaving the system. Still, it not the largest 25 commercial banks in the banking system, the banks that control almost 60% of the total assets of the industry, that are departing. The question still remains about the health of this industry. Is the number of problem banks in the industry going to remain around 900 institutions? Are bank departures going to continue to run off at the rate of 5 to 6 banks a week? Will these rates lessen this year? Or, will they increase? Supposedly, the condition of the smaller banks is getting better. But, as we saw with Bank of America last week, the overhang of bad mortgage loans still plagues some institutions. Right now, the drop off in foreclosures on residential mortgages is misleading because the whole foreclosure issue has become so political that we probably won't really have a good idea about the situation in the housing industry and in loan write-offs for some time.

Bankers, especially from the smaller banks, feel caught in the middle of this exercise. They want to do what they can to help their customers survive. Yet, they are being pressed by the regulators, who also feel they are under excessive pressure, to not show overly-optimistic hopes about the ability of these businesses to repay. In fact, the result may be that a too pessimistic approach is taken toward the quality of the bank loans.

As a consequence, we will probably see the list of problem banks remain somewhere around their current highs and we will probably see business loans and commercial real estate loans continue to decline on the balance sheets of the banking industry. And we will continue to experience a decline in the number of banking institutions in the United States. The crucial element of this decline is that it is that the decline takes place in an orderly fashion.

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Article Tags: Banker, Construction Financing, HUD, Lender, Loans, SBA



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