Banks at Risk Of Failure

Is your Bank at Risk of Failure? This is what is on everyone’s minds now that the banking industry is looking really shakey. The FDIC has stated it has 90 banks on its list of troubled banks and just this past week the failure of the Indymac bank has caused an uproar and many people are feeling fear. The truth is banks do fail, but not that often. Just 28 banks have failed since 2000, but those where different times than the environment today. I’m sure people who had money in those 28 banks would not say only 28 banks, but the economists don’t worry about a few banks out of over 8000, so its has not been that big of news until now. The mainstream are now looking at whether their bank may be at risk. Its not like the FDIC is going to tell you that your bank is about to fail. If it does you will just drive by your bank and see the closed sign on it. Or you could hear about your bank failure from the television.  Concerns about liquidity in the banking system have raised the possibility that there will be an increase in bank failures in the next year or so. This is not good news.

The credit meltdown that has been increasing since the summer has depleted capital levels, and banks are getting stuck with mortgage-related assets. Which creates the chance that more banks will fail. Regulators have been fretting about the problem since early this year.

"Some have come to believe that the FDIC should not spend any time worrying about or planning for a large bank failure because these banks have become so well diversified and sophisticated in their risk management," said FDIC Chairman Sheila Bair in a speech to the Exchequer Club in Washington, D.C., in March. But, she added, "it does not mean we can rule out potential problems."

Banks fail because they either run out of capital to support their ongoing operations, their asset values drop below that of their liabilities, or fraud forces regulators to step in and take over. Most bank failures are of small institutions. There have been just two failed banks with more than $1 billion of assets since 2000. But just because a bank is big does not mean it can not fail. Indymac was a pretty big bank and it failed. Larger banks have more resources and are able to diversify more than smaller banks, but with the number of mortgage defaults rising along with the increasing prices in all areas of thee conomy, then more and mroe people are not able to pay their bills. This issue with the Banks at Risk is going to probably get worse before it gets better. Wall street is coming under increasing pressure and with each falling day, more liquidity is drained from the economy.

If your bank is failing, you probably won’t know about it. Regulators deliberately keep a pending closure secret to avoid a mad rush to remove deposits–a run on the bank, if you will. For one thing, a sale of the institution is often possible at the last minute, eliminating the need for federal intervention. But a buyer isn’t going to take on the deal if all the deposits rush out the door. For many customers, the first time they know their bank has been shut down is when their credit card gets declined or they walk to their branch and notice it’s closed.

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