Bank failures continue unabated as the U.S. regulators closed down three more banks last Friday. Out of the three failed banks, two were based in Georgia and one in Illinois. This brings the number of U.S. bank failures to 14 so far in 2011, preceded by 157 in 2010, 140 in 2009 and 25 in 2008.
While the various programs launched by the government worked in favor of the bigger banks, the struggle for survival continues for many smaller banks. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to cast a shadow on such institutions.
With the industry absorbing bad loans offered during the credit explosion, the banking system is vulnerable to some severe problems. This is aggravating the risk of bank failures even further.
The failed banks are:
- Roswell, Georgia-based American Trust Bank, with total assets of about $238.2 million and total deposits of about $222.2 million as of December 31, 2010.
- Watkinsville, Georgia-based North Georgia Bank, with about $153.2 million in total assets and $139.7 million in total deposits as of December 31, 2010.
- Chicago, Illinois-based Community First Bank – Chicago, with total assets of about $51.1 million and total deposits of about $49.5 million as of December 31, 2010.
These bank failures represent another blow to the Federal Deposit Insurance Corporation (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for these banks.
The FDIC insures deposits in 7,760 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank collapses, the FDIC reimburses deposits of up to $250,000 per account.
Though the FDIC has managed to shore up its deposit insurance fund during the last few quarters, the outbreak of bank failures has tested its limits. As of September 30, 2010, the fund remained in the red with a deficit of $8 billion despite adding $7.2 billion during the quarter.
The failure of American Trust Bank is expected to be dearer by about $71.5 million for the FDIC, while North Georgia Bank and Community First Bank – Chicago will cost about $35.2 million and $11.7 million, respectively.
Tupelo, Mississippi-based Renasant Bank has agreed to assume all the deposits and $147.4 million of American Trust Bank’s assets. The FDIC and Renasant Bank have agreed to share losses on $94.3 million of American Trust Bank’s assets.
Greensboro, Georgia-based BankSouth has agreed to assume the deposits and $123.9 million assets of North Georgia Bank. The FDIC and BankSouth have agreed to share losses on $120.1 million of North Georgia Bank’s assets.
Northbrook, Illinois-based Northbrook Bank and Trust Company has agreed to assume assets and deposits of Community First Bank – Chicago. The FDIC and Northbrook Bank and Trust Company have agreed to share losses on $42.8 million of Community First Bank – Chicago’s assets.
In the third quarter of 2010, the number of banks on FDIC’s list of problem institutions grew to 860 from 829 in the previous quarter and 552 in the year-ago quarter. This is the highest since the savings and loan crisis in the early 1990s.
Increasing loan losses on commercial real estate are expected to result in hundreds of bank failures in the forthcoming years. Going by the current rate of bank failures, the FDIC is likely to feel a $52 billion pinch over the next three years.
The failure of Washington Mutual in 2008 was the largest in the U.S. banking history. It was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).
By: Kalyan Nandy