Bair’s FDIC – 106 Banks Down, 400 To Go!
by Hiland Doolittle
Straight-talking, fast shooting and true to her word, FDIC gunslinger Sheila Bair pulled the trigger on seven more banks over the weekend. The closings raised her agency’s annual total to 106 banks shuttered in 2009. In August, the understaffed and under-funded FDIC identified 416 banks with total assets of $299.8 billion that were on the agency’s troubled bank list. There is little doubt that bank closings will remain aggressive through 2011 and quite possibly well beyond.
The FDIC’s staff was trimmed from 21,000 employees to 6,000 during the Bush presidency. Meanwhile the agency’s capital funding is sorely depleted. Bair is patiently waiting much needed new funding derived from pre-paid member dues and Obama Administration-approved staff increases. The fund replenishment and increased examiner body count will enable even more aggressive shuttering of troubled lending institutions.
This weekend’s closings included:
- Flagship National Bank ($175 million) – Bradenton, Florida – assets now managed by First Federal Bank of Florida
- Partners Bank ($64.9 million) – Naples, Florida – assets now managed by Stonegate Bank in Fort Lauderdale
- Hillcrest Bank Florida ($84 million) – assets managed by Stonegate Bank in Fort Lauderdale
- American United Bank ($101 million) – Lawrenceville, Georgia – assets now managed by American Bank of Moultrie, Georgia
- Riverview Community Bank – Otsgeo, Minnesota – assets now managed by Central Bank
- Bank of Elmwood – Racine, Wisconsin – assets now managed by Tri City National Bank of Oak Creek, Wisconsin
- First Dupage Bank – Westmont Illinois – assets now managed by First Midwest Bank of Ithasca, Illinois
Closings Are Expensive
Typically, bank failures cost the FDIC between 25 and 30% of the bank’s total assets. The weekend failures cost the FDIC approximately $357 million. The agency projects that bank failures will cost the FDIC a stunning $100 billion from 2009 – 2013.
The FDIC has clearly pointed to commercial real estate investment failures as the dominant factor in the downfall of community banks. Banks with less than $10 billion in totals assets tend to be heavily vested in commercial real estate ventures where the smaller banks were able to successfully compete with larger institutions for loans. While bigger banks also have commercial loans, they tend to represent a smaller percentage of their overall portfolio.
The 106 closings this year mark the first time more than 100 banks have been closed in a single year since 1992. In 1989, during the savings and loan debacle, a record 531 banks were closed. The 2009 total would be immeasurably higher than the current tally if the FDIC had available funding and an adequate number of examiners to meet the crises.
While many investors and economists have concentrated on the residential housing woes of the recession, Chairman Bair is clearly more focused on commercial real estate (CRE). “The most prominent area of risk for rising credit losses at FDIC insured institutions during the next several quarters is in CRE lending,” Bair told the Senate subcommittee on financial institutions.
As commercial loans approach renewal dates, hotels, malls and condominium financing remain in jeopardy. Filled with unoccupied space and dwindling property values that are 35 – 40% less than originally appraised, many of these entities are underwater and non-performing. Active commercial real estate loans now total more than $1 trillion or 14.2% of all loans and leases in the banking industry.
Since 2007, U.S. lenders have endured about $1.1 trillion in credit losses and write-downs. The process of closing these banks and clearing out the distressed assets is a painful but necessary step in the overall restoration of the American banking system.
Gerard Cassidy, an analyst with RBC Capital Markets of Portland, Maine, offered the following analysis; “We certainly know there are hundreds and hundreds of zombie banks out there. The only alternative for them is to be seized and it’s only a matter of manpower and money before they get to it. It’s very painful, it costs a lot of money, it ruins careers, but shutting down failed banks and writing off the bad loans is a necessary solution that has to be done to get the economy and the banking system back on its feet.”
A new initiative will encourage lending institutions to recognize potential losses in their commercial real estate portfolios while not renewing the losses awaiting loss recognition. The guiding principle is to clear the decks of troubled assets as soon as possible. Meanwhile, Chairman Bair’s steadfast apolitical approach to the banking crises is gaining momentum and restoring credibility to the nation’s financial institutions.
FDIC Bank Closings 2009 |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Tags: 2009 Stimulus Package, Bailout, Bank of England, Consumer Confidence, Currency Trading, Deflation, depression, dollar, Economy, Gold, housing, Inflation, interest rates, recession, Retail Sales, Stimulus Plan, unemployment, US Dollar, US NonFarm Payrolls, US Retail Sales, US Unemployment
About the Author - Hiland Doolittle
Hiland is a professional writer with extensive entrepreneurial experience. He is a graduate of St. George’s School Newport, RI and the State University of New York at Albany where he majored in history. He has been active in the real estate business for 30 years and has founded and sold several businesses.
Hiland currently writes for several financial sites and is a published author of the novel The Last Parade. He has recently completed a manuscript for a children’s book entitled Sami and The Minnow Man.
