Wednesday, November 4, 2009

Bank Failures Hit 106 For Year; Many More Are Weak

It's a big number that only tells part of the story. The number of banks
that have failed so far this year topped 100 on Friday — hitting 106 by
the end of the day — the most in nearly two decades. But the trouble in
the banking system from bad loans and the recession goes even deeper.

Dozens, perhaps hundreds, of other banks remain open even though they
are as weak as many that have been shuttered. Regulators are seizing
banks slowly and selectively — partly to avoid inciting panic and partly
because buyers for bad banks are hard to find.

Going slow buys time. An economic recovery could save some banks that
would otherwise go under. But if the recovery is slow and smaller banks'
finances get even worse, it could wind up costing even more.

This year's 106 bank failures are the most in any year since 181 collapsed in
1992 at the end of the savings-and-loan crisis. On Friday, regulators took over
three small Florida banks — Partners Bank and Hillcrest Bank Florida, both
of Naples, and Flagship National Bank in Bradenton — along with four
elsewhere: American United Bank of Lawrenceville, Ga., Bank of Elmwood in
Racine, Wis., Riverview Community Bank in Otsego, Minn., and First Dupage
Bank in Westmont, Ill.

When a bank fails, the Federal Deposit Insurance Corp. swoops in, usually on
a Friday afternoon. It tries to sell off the bank's assets to buyers and cover its
liabilities, primarily customer deposits. It taps the insurance fund to cover the

Bank failures have cost the FDIC's fund that insures deposits an estimated
$25 billion this year and are expected to cost $100 billion through 2013. To
replenish the fund, the agency wants banks to pay in advance $45 billion in
premiums that would have been due over the next three years.

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