Bloomberg reports that Seven US Banks Seized in Busiest Year for Closures Since 1992.
(emphasis mine) [my comment]
Seven U.S. Banks Seized in Busiest Year for Closures Since 1992
By Ari Levy and Flynn McRoberts
July 3 (Bloomberg) -- Six banks in Illinois and one in Texas were seized by regulators as the deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since 1992.
Twelve banks have failed this year in Illinois, the most of any state. The seven lenders seized yesterday, with total assets of $1.49 billion and deposits of $1.34 billion, were closed by state or federal regulators and the Federal Deposit Insurance Corp. was named receiver, according to statements from the FDIC. Buyers were named for each of the closed institutions.
The Illinois banks are affiliates of Peotone Bank & Trust Co., in Peotone, Illinois, about 45 miles (72 kilometers) south of Chicago. The failures resulted primarily because of soured loans and losses on investments in collateralized debt obligations, the FDIC said. Illinois, with an unemployment rate above the national average, was one of seven states to begin the fiscal year without a spending plan.
"The six failed Illinois banks are all controlled by one family and followed a similar business model that created concentrated exposure in each institution," the FDIC said. CDOs, which packaged bonds and loans into notes of varying risk and yield, lost money as real estate defaults soared.
Regulators this year have closed the most banks since the savings-and-loan crisis of the 1990s as lenders struggle with mounting losses on mortgages and commercial loans. The total for 2009 is more than double the 25 banks shuttered in 2008 and surpasses the 50 that were closed in 1993. The prior year there were 181 failures or government-assisted transactions.
The FDIC estimates yesterday's seizures will cost its insurance fund $314.3 million. The regulator imposed an emergency fee in May to raise $5.6 billion to rebuild the fund, which has deteriorated in the past 18 months. More assessments are possible, the FDIC said.
Chicago is 280 miles from Detroit, home to General Motors Corp. and Chrysler LLC, which were forced into bankruptcy. Lear Corp., the Southfield, Michigan-based maker of automotive seats, announced plans yesterday to enter bankruptcy. The unemployment rate in Illinois was 10.1 percent in May, compared with 9.4 percent nationally.
"This is a mess," said Jack Ablin, who oversees $60 billion as chief investment officer at Harris Private Bank in Chicago. "We're a manufacturing state and in the Midwest, so we're influenced by the autos."
In addition to CDOs, the failed banks were plagued by losses on commercial real estate loans. Founders Bank of Worth, the biggest of the Illinois banks seized yesterday, had $374 million in construction and commercial real estate loans as of March, accounting for 63 percent of the bank's net loans and leases, according to a regulatory report.
Millennium State Bank of Texas, the Dallas-based bank taken over yesterday, had $67.5 million in such loans, or 81 percent of its total loans.
"The common denominator for most of the bank failures so far has been troubled construction loans," said Matthew Anderson of Foresight Analytics, an Oakland, California-based real estate research firm. "There's no easy way out with defaulted construction loans in today's environment."
The Illinois banks have a combined 29 branches, which will all open under new ownership by July 6, the FDIC said. Millennium's lone office will open that day as a unit of Irvine- based State Bank of Texas.
The following table lists the banks that were seized yesterday. Asset and deposit figures are in millions of U.S. dollars.
Failed Bank Buyer Assets Deposits
Founders Bank PrivateBank & Trust 962.5 848.9 Worth, IL Chicago
First National First Financial 166 147 Danville, IL Terre Haute, IN
Millennium State State Bank of Texas 118 115 Dallas Irving
Rock River Bank Harvard State Bank 77 75.8 Oregon, IL Harvard, IL
Elizabeth State Bank Galena State Bank 55.5 50.4 Elizabeth, IL Galena, IL
John Warner State Bank of Lincoln 70 64 Clinton, IL Lincoln, IL
First State Bank First National 36 34 Winchester, IL Beardstown, IL
My reaction: FDIC seized seven banks last Thursday.
1) Six banks in Illinois and one in Texas were seized by regulators on Thursday.
2) The deepening financial crisis pushed the toll of failed U.S. lenders this year to 52, the most since the savings-and-loan crisis of the 1990s.
3) The FDIC estimates yesterday's seizures will cost its insurance fund $314.3 million
4) Twelve banks have failed this year in Illinois, the most of any state.
5) The unemployment rate in Illinois was 10.1 percent in May, compared with 9.4 percent nationally.
6) The common denominator for most of the bank failures so far has been troubled construction loans.
Conclusion: Bank failures will get worse, especially when states like Illinois and California start cutting back on spending to balance their budgets. Meanwhile, the FDIC's Deposit Insurance Fund plunged to an all time low of just $13 billion as of March 31 (0.27% of $4.8 trillion in insured deposits). It is also worth nothing that since March 31, 31 new banks have failed, including the biggest one so far this year, BankUnited. With today's $314.3 million, It is a good bet that most of the $13 billion has been spent in the past 3 months.
Before the end of summer, it is very likely that the Deposit Insurance Fund will run dry, forcing the Fed to monetize the deposits of failed banks. So you can add the FDIC running out of funds to the list of factors setting a time frame on the dollar's collapse.