Bank failures continue with no end in sight. Last Friday, U.S. regulators closed down four more banks in Georgia, North Carolina, New Jersey and Illinois. This brings the total number of U.S. bank failures to 80 so far in 2011, following 157 in 2010, 140 in 2009 and 25 in 2008.
While the financials of a few large banks have been stabilizing on the back of an economic recovery, the industry is still on shaky ground. Nagging issues like rock-bottom home prices along with still-high loan defaults and unemployment levels continue to trouble such institutions.
Lingering effects of the financial crisis continue to weigh on many banks. The obligation to absorb bad loans offered during the credit explosion made these banks susceptible to severe problems.
Further, the repeated risk-taking of bailed out banks ultimately resulted in further threats to the system. Risky loans and market uncertainty aggravated the risk of bank failures even further.
The failed banks are:
- Gray, Georgia-based Piedmont Community Bank, with total assets of about $201.7 million and total deposits of about $181.4 million as of June 30, 2011.
- Asheville, North Carolina-based Blue Ridge Savings Bank, Inc., with about $161.0 million in total assets and $158.7 million in total deposits as of June 30, 2011.
- Cranford, New Jersey-based First State Bank, with about $204.4 million in total assets and $201.2 million in total deposits as of June 30, 2011.
- Aledo, Illinois-based Country Bank, with about $190.6 million in total assets and $167.5 million in total deposits as of June 30, 2011.
These bank failures represent another jolt to the deposit insurance fund (DIF), meant for protecting customer accounts.
The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,513 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank fails, the agency reimburses customer deposits of up to $250,000 per account.
Though the FDIC has managed to increase its deposit insurance fund over the last few quarters, the ongoing bank failures have kept it under pressure. However, as of June 30, 2011, the fund recovered to post a surplus of $3.9 billion, substantially better than the deficit of $1.0 billion in the prior quarter. The positive fund balance seen for the first time in two years was aided by a moderate pace of bank failures and assessment revenue.
The failure of Piedmont Community Bank is expected to deal a blow of about $71.6 millionto the FDIC, while Blue Ridge Savings Bank, First State Bankand Country Bank will cost about $38.0 million, $45.8 million and $66.3 million, respectively.
Macon, Georgia-based State Bank and Trust Company has agreed to assume all the deposits and assets of Piedmont Community Bank. The FDIC and State Bank and Trust Company agreed to share losses on $163.2 million of Piedmont Community Bank's assets.
Thomasville, North Carolina-based Bank of North Carolina has agreed to assume all the assets and deposits of Blue Ridge Savings Bank. The FDIC and Bank of North Carolina agreed to share losses on $143.2 million of Blue Ridge Savings Bank, Inc.'s assets.
Staten Island, New York-based Northfield Bank has agreed to assume all the deposits and assets of First State Bank.
Milan, Illinois-based Blackhawk Bank & Trust has agreed to assume all the deposits and about $113.3 million in assets of Country Bank.
The number of banks on FDIC’s list of problem institutions fell sharply to 865 in the second quarter from 888 in the preceding quarter. This represents the first sequential drop since 2006.
Increasing loan losses on commercial real estate could trigger hundreds of bank failures in the upcoming years. However, considering the failure track so far this year, the FDIC does not expect the number of bank failures in 2011 to exceed the 2010 tally.
With so many bank failures, consolidation has become the industry fashion. For almost all the failed banks, the FDIC enters into a purchase agreement with healthy institutions.
When Washington Mutual collapsed in 2008 (branded as the largest bank failure in the U.S. 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).
BB&T CORP (BBT): Free Stock Analysis Report
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US BANCORP (USB): Free Stock Analysis Report
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