savings

More bank closings to come?

Some people have expressed concern that the FDIC will come up short in the future if bank failures continue at the current pace. The agency recently approved a one-time special assessment that will be paid by all insured banks in September and has said that another special assessment will be imposed if needed. Additionally, Congress raised the FDIC's borrowing authority at the Treasury to $100 billion versus the previous limit of $30 billion.

"The FDIC brings in about $12 billion annually in regular assessment income that we charge the banks for deposit insurance, and then the one-time special assessment will bring in about $6 billion more, so that will be $18 billion coming in this year," says FDIC spokesman David Barr.

"The other amount of money, or resource, that we have at our disposal is the $28 billion we've set aside for failures over the next 12 months -- and we've used about $10.5 billion. So the FDIC has plenty of resources at its disposal without tapping the Treasury's $100 billion. Even though Congress recently upped our borrowing authority, our chairman (Sheila Bair) would still prefer to have the banks support the DIF as opposed to going to the Treasury to tap the line of credit. But with all those resources at our disposal, we feel that we have sufficient resources to continue to protect depositors and make good on our obligation to protect customers."

Solvency crisis?

Keith Hazelton, director of economic research at Oklahoma Bankers Association, says the number of banks that fail over the next few years will largely depend on how many of their customers remain solvent.

"The Fed and the Treasury have successfully concluded the liquidity crisis and the credit crisis, I believe. The one that remains now is the solvency crisis. Individuals, businesses and commercial real estate ventures -- can they remain solvent? That's just too much of a wild card to even guess at because it really depends on the shape of the recovery, and I think the jury is still out on that, especially on the consumer side."

Interestingly, no Oklahoma-based banks have failed this year, and Hazelton says he thinks local banks learned some hard lessons during the energy bust in the 1980s.

"Credit decisions that were predicated on rising energy prices failed to materialize and the banks took a big hit. If you substitute housing for energy, you essentially have a mirror image in many parts of the country with what happened here in the midsection in the 1980s. You had a rapid run-up of an asset class in terms of valuation -- far above what could be sustained."

Let's hope that lessons learned from the current crisis aren't easily forgotten in the years ahead.

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