Bank failures: How bad will it be? |
| By Laura Bruce • Bankrate.com |
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Washington Mutual, Wachovia and National City are
among the financial institutions that have announced huge losses
and are looking for billions of dollars from private equity firms
or others in the industry just to keep their doors open. In all
likelihood, the bigger banks and savings and loan associations will survive the
mortgage debacle and ensuing credit crunch, albeit somewhat battered
and bruised.
But smaller banks may not fare as well, although it doesn't appear that we'll see a cascade of bank
failures. Nevertheless, the increased risk has prompted the Federal Deposit Insurance Corp., or FDIC, to beef up its staffing
in anticipation of banks going belly-up.
The FDIC insures approximately 8,500 institutions; 79 of them are on the agency's secret list of problem
banks as of Dec. 31, 2007. Being on the problem list doesn't mean that a bank will fail; in fact, the agency says
historically about 13 percent of banks on the list fail. The greater problem is that the damage done to financial institutions
in 2007, and continuing through 2008 and perhaps beyond, may add many more names to the list.
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| U.S. bank failures 2003 to 2008 |
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"When you get on that list it means the regulators are working more closely with you on a supervisory
basis," says FDIC spokesman David Barr. "We're trying to work with the institution to recognize the problems and have
them work out their difficulties so they get off the list."
Community banks are the institutions raising the most
concern, because, some industry analysts say, they are the ones that
may be at the most risk. But Karen Thomas, executive vice president
for government relations at Independent Community Bankers of America,
an organization representing 7,500 community banks, says that on
balance, the group is in good shape.
"The industry as a whole is coming off a period of
record profits and strong liquidity. As a result, 99 percent of
banks and thrifts remain well-capitalized and meet or exceed the
highest regulatory capital standards. Community bankers are strong,
responsible, commonsense lenders. They didn't cause this crisis
and we expect them to weather this storm very well. They're looking
at their asset quality and their loan portfolios and taking any
actions that they deem are prudent."
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