A Century of Failures: 3 more Banks Fail as number nears 100

2009 certainly has not been a good year for banking. The FDIC closed 3 more banks this weekend bringing the total number of bank failures to 98 this year. FDIC projections put the number of failures to reach the 100 mark within a couple of weeks. Continuing bank failures have mirrored the poor health of the country’s financial institutions.

Three more banks joined the list of recent bank failures. The FDIC announced this Friday that it has included Southern Colorado National Bank of Pueblo, Colorado; Jennings State Bank of Spring Grove, Minnesota and Warren Bank of Warren, Michigan in its list of bank closures.

Costs of Failures

The FDIC has estimated that the recent bank failures will be putting a dent in their funds of at least $850 million. This will put an increased strain on the dwindling funds which previous bank failures have cost. The FDIC projects that over the next 5 years losses could reach $70 billion.

In more troubling news, figures also show that problem banks rose to 416 from 305 the previous quarter. Analysts predict that the total bank failures this year could reach 150. This is a turnaround from 2005 – 2006 figures which posted no bank failures.

Southern Colorado National Bank of Pueblo, Colorado

Southern Colorado National Bank’s failure marks Colorado’s 3^rd this year. Legacy Bank of Wiley, CO will assume all of the closed bank’s deposits ($31.9 million) and assets ($39.5 million). It has also agreed to share losses estimated at $25.5 million with the FDIC. An estimated loss of $6.6 million was announced by the FDIC from the bank’s closure.

Acquiring Financial Institution: (FDIC excerpt)

All deposit accounts have been transferred to Legacy Bank, Wiley, CO (”assuming institution”) and will be available immediately.  On Saturday, October 3, 2009, former Southern Colorado National Bank locations will reopen as branches of Legacy Bank.

Your transferred deposits will be separately insured from any accounts you may already have at Legacy Bank for six months after the failure of Southern Colorado National Bank. Checks that were drawn on Southern Colorado National Bank that did not clear before the institution closed will be honored as long as there are sufficient funds in the account.  For more information on deposit insurance, you may speak to an FDIC representative regarding deposit insurance by calling 1-866-782-1402 or visit EDIE, the FDIC’s Electronic Deposit Insurance Estimator.

Jennings State Bank of Spring Grove, Minnesota

The bank is the 4^th financial institution to be closed in Minnesota this year. Central Bank of Stillwater, Minnesota will acquire all of the closed bank’s deposits ($52.4 million) and assets ($56.3 million). It has also agreed to share with losses placed at $37.7 million with the FDIC. Jennings State Bank failure will cost the FDIC an estimated $11.7 million.

Acquiring Financial Institution (FDIC excerpt)

All deposit accounts have been transferred to Central Bank, Stillwater, MN (”assuming institution”) and will be available immediately.  On Saturday, October 3, 2009, the former Jennings State Bank locations will reopen as branches of Central Bank.

Your transferred deposits will be separately insured from any accounts you may already have at Central Bank for six months after the failure of Jennings State Bank. Checks that were drawn on Jennings State Bank that did not clear before the institution closed will be honored as long as there are sufficient funds in the account.  For more information on deposit insurance, you may speak to an FDIC representative regarding deposit insurance by calling 1-800-528-6215 or visit EDIE, the FDIC’s Electronic Deposit Insurance Estimator.

Warren Bank of Warren, Michigan

Michigan marks its second bank failure of the year with the closure of Warren Bank. The Huntington National Bank in Columbus, Ohio will receive all deposits ($501 million) and $83 million of the failed bank’s $538 million in assets. The FDIC will receive all remaining assets for further disposition. In another blow to FDIC funds the bank’s closure will cost an estimate $275 million.

Acquiring Financial Institution (FDIC excerpt)

All deposit accounts, excluding certain brokered deposits, have been transferred to The Huntington National Bank, Columbus, OH (”assuming institution”) and will be available immediately.  On Saturday, October 3, 2009, the former Warren Bank locations will reopen as branches of The Huntington National Bank.

Your transferred deposits will be separately insured from any accounts you may already have at The Huntington National Bank for six months after the failure of Warren Bank. Checks that were drawn on Warren Bank that did not clear before the institution closed will be honored as long as there are sufficient funds in the account.  For more information on deposit insurance, you may speak to an FDIC representative regarding deposit insurance by calling 1-877-894-4713 or visit EDIE, the FDIC’s Electronic Deposit Insurance Estimator.

Drops in the Bucket

The FDIC has assured that all bank deposits are insured and that depositors can withdraw money from their accounts through all available ATM’s. All bank deposits are covered by the FDIC up to $250,000, but bank accounts are only a part of banking transactions. Banks also provide credit card services, checking accounts and mortgages, to name a few.

At this point, is seems people have gotten so used to hearing about bank failures that we overlook an eve more dangerous situation that could arise if banks continue to fail. It is estimated that these 3 recent bank failures alone could cost the FDIC around $850 million. With some reports putting the FDIC in the red by the end of this year, a serious question that may soon be hanging in the minds of many Americans is: What if the FDIC finally runs out of funds?

Obviously, FDIC funds are not limitless. For now, repayments and loss-sharing are drops in the bucket, but after going back to the faucet one morning we could find ourselves without water. Unless we see bank failures in the larger context and do something to keep them from outpacing the generation of new FDIC funds, we might be faced with the greater problem of continued bank failures without the security of insured deposits . Until the FDIC’s balance becomes stable, we might find ourselves digging a hole we can’t climb out.