Should You Be Worried With All These Bank Failures

On CNN Money: Bank failures stack up: Now 106 for 2009

• NEW YORK (CNNMoney.com) -- The tally of bank failures easily broke past the No. 100 milestone on Friday night, with regulators announcing the year's 106th closure.
  
  That's more than four times the number that were closed in 2008, and the highest total since 1992, when 181 banks failed.
  
  Earlier on Friday evening the dubious honor of the 100th failure went to Partners Bank, of Naples, Fla., which had $65.5 million in assets, according to the Federal Deposit Insurance Corp.
  
  The 101st failure was American United Bank, of Lawrenceville, Ga., which had $111 million in assets.
  
  The 102nd failure was another Naples, Fla., institution: Hillcrest Bank Florida, which had $83 million in assets.
  
  The 103rd closure was Bradenton, Fla.-based Flagship National Bank, with $190 million in assets.
  
  The 104th was Bank of Elmwood, based in Racine, Wis., which had $327.4 million in assets.
  
  The 105th failure was Riverview Community Bank of Otsego, Minn., with $108 million in assets.
  
  The 106th failure was First Dupage Bank in Westmont, Ill., which had $279 million in assets.
  
  Customers of all seven banks are protected, however. The Federal Deposit Insurance Corp., which has insured bank deposits since the Great Depression, covers customer accounts up to $250,000. This is funded through premiums paid by member banks.

Holy Cow!

Seven banking failures in one day!!!!!!!!!!!!!!!

Yeah, how optmistic can one be for an economic recovery!

Highlighted earlier this month: Georgian Bank: Yet Another Failed Bank!

• Oct. 1 (Bloomberg) -- There was a stunning omission from the government’s latest list of “problem” banks, which ran to 416 lenders, a 15-year high, as of June 30. One outfit not on the list was Georgian Bank, the second-largest Atlanta-based bank, which supposedly had plenty of capital.

And as mentioned, it really makes one wonder. The bank was 'supposedly' have plenty of capital and it was not even on the problem banks list.

Now we have SEVEN more bank failures!

Which makes this posting Banks' Health Were Exaggerated! more relevant!

Mentioned in that posting was a CNBC article: US Officials Exaggerated Banks' Health: Watchdog

• Senior U.S. officials deliberately created the impression last year that banks receiving huge government cash infusions were healthier than was the case, a Treasury Department watchdog's report released Monday said.
  
  As a result, the government and the bailout lost public credibility when the financial crisis deepened.
  
  Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke said at the time that their dramatic force-feeding of $125 billion into nine banks in October 2008 was a program for "healthy" institutions.
  
  Privately senior officials worried about the health of some of those firms, Treasury's Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky, said.
  
  "By stating expressly that the 'healthy' institutions would be able to increase overall lending, Treasury may have created unrealistic expectations about the institutions' condition and their ability to increase lending," the report said. Paulson won approval from Congress to spend $700 billion to repair the financial system.... (read the rest here )

Anyway, the article on CNN then continues.

• Why regional banks are failing. While larger financial institutions have received aid from the federal government, smaller banks have found themselves left adrift. Like their larger counterparts, many of these banks made risky loans to individuals and real estate developers during the boom years and are now facing large numbers of defaults as the recession drags on.
  
  Rising unemployment has made it difficult for many individuals to keep up with expenses, and businesses are feeling the crunch of consumers' reduced spending power. As a result, regional banks are left holding loans their customers can't repay.

The very last passage explains clearly why one the current so-called 'recovery' is clearly not sustainable if the unemployment problem persists.

No employment, how could these 'many individuals' keep up their expenses?

No employment, how about their housing loans (if any)?

No employment, how could they spend?

And if they do not spend, what then for America and the world? What then for the world largest consumer?

A consumer equals to a customer, no?

In a business, if customer spends less or if there is less customer, how optimistic can one be?

Remember Warren Buffett's Comments On US Economy

• The patient really went into the emergency room and it won’t come out of the hospital entirely for a while."

That the patient is STILL in the hospital.

That the patient is likely to stay in the hospital for a while.

The CNN article then continues.

• Problem banks list looms. The FDIC keeps a list of "problem banks," though it does not disclose the names to the general public out of fear that depositors at those institutions may prompt a "run on the bank."
  
  In June, the agency said 416 banks were at risk of failure -- the highest level in 15 years.
  
  It's a whopping figure, to be sure. But even as the pace of failures accelerates, 2009's numbers remain far from what happened during the savings and loan crisis two decades ago. More than 1,900 financial institutions failed from 1987-1991, peaking at 534 closures in 1989.

The problem bank list has 416 banks at risk.

But... but... but... one cannot even discount the banks NOT in the list.

Why? The US Banks' Health Were Exaggerated! as per CNBC article. Look at the example of Georgian Bank!

So what if there is MORE banks at risk?

And to make the matters even more worrying.

• Federal coffers running dry. An average of 10 banks have failed per month this year, and the federal coffer is thinning under the massive strain. The fund now stands at $7.5 billion, down significantly from $45 billion a year ago.
  
  When the FDIC factors in expected closures, the agency says the fund is in the red and will likely remain there through 2012. Bank failure costs are expected to total $100 billion over the next four years, leaving regulators strapped for cash.
  
  Last month, the FDIC discussed how to raise quick cash to replenish the fund. The agency proposed that banks prepay their deposit insurance premiums for the next three years.

Oops! The money is drying out really fast in FDIC!

How now?

Hmmm.. posted earlier this month: The Sustained Economic Rebound May Be Elusive!