After a week’s pause, U.S. regulators were back in action, shuttering two more banks in Georgia. This brings the total number of U.S. bank failures to 70 so far in 2011, following 157 in 2010, 140 in 2009 and 25 in 2008.
While the financials of bigger banks have been stabilizing on the back of an economic recovery, many smaller banks are still struggling to survive. 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. It becomes obligatory for such banks to absorb bad loans offered during the credit explosion, making them susceptible to severe problems. The uncertain environment is aggravating the risk of bank failures even further.
The most recent failed banks are:
- Cumming, Georgia-based Patriot Bank of Georgia, with total assets of about $150.8 millionand total deposits of about $111.2 millionas of June 30, 2011.
- Woodstock, Georgia-based CreekSide Bank, with about $102.3 millionin total assets and $96.6 millionin 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 returned to the black with a surplus of $3.9 billion, substantially better than a 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 Patriot Bank of Georgia is expected to deal a blow of about $44.4 million to the FDIC, while CreekSide Bank will cost about $27.3 million.
Atlanta, Georgia-based Georgia Commerce Bank has agreed to assume the assets and deposits of both Patriot Bank of Georgia and CreekSide Bank. The FDIC and Georgia Commerce Bank have agreed to share losses on $136.2 million of Patriot Bank of Georgia’s assets and $69.2 million of CreekSide Bank’s assets.
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 coming years. However, considering the fail trail 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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