Florida 4th in Bank Failures

This latest failure announcement by the FDIC means that Florida and Georgia now have 33 bank failures between them, after two Floridian banks, Orion Bank and Century Bank, both failed on November 13th. Florida has 3 fewer failures than California, 7 fewer failures than Illinois, and 9 fewer than Georgia, the state with the most bank failures by far this year.

“Assuming Institution”

The failed assets and deposits from Commerce Bank of Southwest Florida will be transferred to Central Bank of Stillwater, MN over the weekend. The FDIC entered into the deal with Central Bank, saying that it was the “least costly option” for the Deposit Insurance Fund (DIF). The single branch of Commerce Bank of Southwest Florida will reopen on Monday as a Central Bank branch. Depositors will be able to access their funds as usual over the weekend, and the FDIC has assured them that all of their deposits up the $250,000 limit are insured.

Under this new legislation, there would be a council of regulators that have the authority to take apart large financial operations. It would require the Treasury secretary’s approval to force a break down of assets worth at least $10 billion. If it is necessary to have a break up of a corporation worth more than $100 billion, then it would require consultation with the president.

Stiff Opposition

As should be expected, Republicans have voiced their discontent with the proposal calling it “draconian” and “unconstitutional”. Rep. Randy Neugebauer (R-Texas) was quoted as saying “When the government says you are too big and we’re going to make you dismantle, that is a taking of private property rights in this country.”

There are also some large financial firms voicing their concern over this new reform. Jamie Dimon, chief executive of JPMorgan Chase & Co., said that he would have no problem with allowing for the orderly dismantling of a large financial company on the brink of collapse. However, he believes that financial firms should not be capped because they will not be able to compete with massive foreign banks.

Some Strong Support

On the other hand this proposal is also gaining steam. Both Former Federal Reserve Chairmen Paul Volcker and Alan Greenspan have recently backed the proposal. Even the Bank of England endorsed the idea, so there are definitely some out there that want this to come to fruition. The Obama administration also backs this proposal but wants even tougher rules (for big financial firms) such as requiring them to have more capital at hand in case of losses. It will be interesting to see what happens, but do not expect everything to get passed in one smooth process.

The Latest Failures

The most recent failures bring the total banks failed in the US to 122, the highest number of bank failures in a year since 1992, when 181 banks failed, but still a far cry from the record year in 1989, where 534 banks failed. The Florida banks that the FDIC announced as failed on Friday, November 13th are:

• Orion Bank, Naples, FL – With 23 branches and approximately $2.7 billion in assets, Orion Bank was the largest bank to fail this weekend. The cost of this failure to the FDICs Deposit Insurance Fund (DIF) is estimated to be $615 million.

• Century Bank, F.S.B, Sarasota, FL – Century Bank has 11 branches, and total assets of approximately $728 million. The cost of this failure to the FDICs DIF is estimated to be $344 million.

IBERIABANK entered into an agreement with the FDIC to buy both of the banks failed assets, and all branches of both Orion and Century Banks will reopen today as branches of IBERIABANK.

Also closed today was Pacific Coast National Bank of San Clemente, CA, which will be reopened under SunWest Bank. Pacific Coast National Bank had two branches and $134.4 million in assets. This closure cost the FDIC approximately $27.4 million, bringing the total cost of the weekend’s failure to the FDIC to almost $1 billion.

Fannie Mae Website

Fannie Mae’s Challenges in 2009

Fannie Mae has recently been concentrating on preventing foreclosures and increasing the availability of liquidity in the mortgage market with a particular emphasis on their involvement in the government’s “Making Homes Affordable” program. By September 30th 2009 they had processed or began the processing of 180,000 mortgage loan modifications. In addition to loans modified under this program they have also been actively working on other home retention strategies outside the parameters of Making Homes Affordable. For example, in July 2009 the Federal Housing Finance Agency (FHFA) authorized Fannie Mae to acquire refinance mortgage loans where the unpaid principal balance is less than 125% of the property’s current value. In the third quarter of 2009 they acquired about 626,000 refinance loans.

Disappointing Yet Understandable Figures

Set against a disturbing background of rising unemployment and falling high prices leading to high levels of loan delinquency and credit losses, Fannie Mae was probably not expecting to issue an encouraging report for the third quarter of 2009. These pessimistic expectations were justified. The latest report shows a third quarter loss of $18.9 billion, representing a dramatic increase from the $14.8 billion lost in the previous quarter of 2009. These disappointing figures brought their total losses since September 2008 to $111 billion. In the light of these worrying figures, a request has been made to the US Treasury for an extra $15 billion in funding.

The only bright light came in terms of the continued strong demand for Fannie Mae debt securities, although even here there is some doubt about how the market is going to react if the government decides against extending the Treasury credit facility that is due to expire at the end of the year.

Trends Behind the Statistics

The dimensions of the housing market crisis are reflected in increasing numbers of loans entering the seriously delinquent category (which Fannie Mae applies to loans delinquent for at least three months). At the same time the proportion of delinquent loans successfully resolved or foreclosed declined. The decline in foreclosures is attributed in part to efforts made to persuade mortgage banks to explore alternatives, and to legal delays in this process in specific states. Fannie Mae expects this pattern to carry on throughout 2010.

Fannie Mae recognizes that their commitment to the Making Homes Affordable program is going to continue to be a source of significant losses and reduce the net worth of the enterprise. They hope to see longer term financial benefits for the housing market and individual credit worthiness if this program succeeds in reducing the numbers of foreclosures. The anticipated improvements are however contingent on a wider easing of the financial crisis, especially a reversal in rising unemployment.

Although many householders are being assisted to keep their homes, the figures show that the rising tide of foreclosures has not been reversed. In the second quarter of 2009 foreclosures brought 32,095 single-family properties into Fannie Mae’s possession, but in the third quarter of 2009 this number increased by over 25% to 40,959.

Senator Christopher Dodd

The major component of this bill is the creation of the Consumer Financial Protection Agency (CFPA). This agency would assume the consumer protection duties from existing regulatory agencies, such as the Federal Reserve, Comptroller of the Currency, Office of Thrift Supervision, Federal Deposit Insurance Corp, National Credit Union Administration, Federal Trade Commission.

Also, a panel of regulators including the FDIC would have the authority to monitor and control troubled financial giants, while the Securities and Exchange Commission (SEC) would have similar authority over systemically important broker-dealers. Look at it this way; if there is a really massive financial institution that poses a threat to the economy because it is not in good financial shape, then under new regulations it would be broken up into smaller entities. By doing this, regulators could eliminate the whole ‘too big to fail’ argument. Banks that are not big complex financial companies (such as AIG or Citigroup) would not need massive bailouts if they start to encounter financial distress. They would just be allowed to fail, restructure or be bought.

The new legislation also proposes that there be a new Financial Institutions Regulatory Administration (FIRA). This administration would have a board including FDIC chairman, Fed chairman, three presidential appointees. You can think of this as the Supreme Court of bank regulatory committees. The creation of FIRA could totally remove of replace the Office of the Comptroller of the Currency and the Office of Thrift Supervision, as well as some duties of the Federal Reserve.

Not So Fast

We should all consider one thing though, and that’s the fact that the banking industry heavily opposes such a consolidation. Many of these banks are the same banks that supported Senator Dodd on many other things before. In addition to this, senator Dodd himself has stated that he has been reaching out to Republicans to try to reach a consensus but it was to no avail. It looks to be a very ambitious bill, but expect many changes as time progresses and many features to be ‘watered down’ before the bill is finally passed.

Federal Reserve in Washington DC. by MyG9

A survey conducted by the Fed of 57 U.S banks and 23 foreign banks with branches here in the U.S has confirmed lower loan figures. For one, consumer loans held by U.S banks have fell from $857 billion to $847 billion at the end of the year. These loans range from auto loans to mortgages and credit cards. Furthermore, total loans and leases held by U.S banks have fallen to $7.2 trillion as of October 28.  This is down from $7.2 trillion at the end of 2008, which means that loans have fallen by a half trillion in less than a year. The Fed has also stated that nine out of ten bank holding companies have increased their reserves to handle the risk of more layoffs and sluggish economic growth.

A Silver Lining

It’s important to note that even though things generally seem bleak, there is actually some good news we can pull from this report. Although lending standards are tighter, the number of banks that have stricter lending standards has decreased. If you look at the amount of banks that tightened standards for credit-card loans it’s about 15 percent in August, compared with 35 percent in July. Another point to consider is that loan demand decreased at fewer banks than in the second quarter.

Loans at JP Morgan fell from $761.4 billion a year earlier, to $653.1 billion at the end of the third quarter. Also, Bank of America loans shrank to $878.4 billion from $922.3 billion a year earlier. We see that the major banks are definitely the ones that are scaling back on underwriting loans. The major factor causing the decrease in loans was the fact that consumer spending is lower.  This shows that people are trying to tap into credit lines and some of the banks are loosening up. There are also as many banks that are being stricter, however, and so while things might be looking up, this is just the beginning of a turn around and that we are not out of the woods yet.

The Case of Georgia

You might wonder why Georgia has so many banks that are in trouble, or you might even wonder why the state has so many banks in the first place.  Well, in 1996 a law was put in place that prevented local Georgia banking monopolies.  It was difficult for a lender based in one of the state’s 159 counties to open a branch in another and, as a result, Georgia currently has 309 unique banks (even after the recent failures).  Right now there are 57 banks in Georgia that have a very high Texas Ratio (greater than 100 percent), which is up from 49 in the second quarter of this year.  After Georgia, Florida has the next highest count of banks with high Texas Ratios with 43 and Illinois comes in third with 29 banks on that list.

Let’s Do The Math

Leading the list of Georgia banks in the third quarter would be Commercial Bank, a small Atlanta-based lender, with a Texas ratio of 1,144 percent. This means that their bad loans amount to more than 11 times the amount of equity and reserves that they have to support it. This figure has actually increased 10 times since the second quarter so either they’re either still making bad loans or their capital is shrinking. If you look at the biggest banks in the country you would see how disastrous that figure is. For instance we have Citigroup registering a Texas Ratio of 28.9 percent and JP Morgan (Chase) with a ratio of 7.59 percent. Let’s not forget that they had a bit of help from the government so that does not reflect a completely accurate figure.

Some Troubled Georgian Banks

Now let’s look at a few of the banks that could potentially make Georgia a continued leader on the FDIC’s failed bank list. Some of the banks with the highest Texas Ratios are as follows:

• First Security National Bank Norcross – 868%

• Buckhead Community Bank Atlanta – 711%

• McIntosh Commercial Bank Carrollton – 592%

• First National Bank of Georgia Carrollton – 480%

• Century Security Bank Duluth – 474%

• United Security Bank Sparta – 440%

• Appalachian Community Bank Ellijay – 398%

• Tattnall Bank Reidsville – 397%

• Community Bank & Trust Cornelia – 383%

As we can see, Georgia definitely could have more problems to come. Only time will tell if they can ride it out or if the state may soon encounter a situation that can see them overtake Florida and California in the headlines.

United Security Bank, Sparta, GA

The 21st bank to fail in Georgia, United Security Bank’s assets were transferred to Ameris Bank of Moultrie, GA by the FDIC in order to protect depositors. United Security Bank locations reopened on Monday as branches of Ameris Bank. As of September 14, 2009, United Security Bank had total assets of $157 million and total deposits of approximately $150 million. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $58 million.

Home Federal Savings Bank, Detroit, MI

Home Federal Savings Bank’s assets were transferred to Liberty Bank and Trust Company of New Orleans, LA by the FDIC in order to protect depositors. Home Federal Savings Bank locations reopened on Monday as branches of Liberty Bank and Trust Company. As of September 24, 2009, Home Federal Savings Bank had total assets of $14.9 million and total deposits of approximately $12.8 million. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.4 million.

Prosperan Bank, Oakdale, MN

Prosperan Bank’s assets were transferred to Alerus Financial, N.A. of Grand Forks ND by the FDIC in order to protect depositors. Prosperan Bank locations reopened on Monday as branches of Alerus Financial. As of August 31, 2009, Prosperan Bank had total assets of $199.5 million and total deposits of approximately $175.6 million. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $60.1 million.

Gateway Bank of St. Louis, St. Louis, MO

Gateway Bank of St. Louis’s assets were transferred to Central Bank of Kansas City, MO by the FDIC in order to protect depositors. Gateway Bank of St. Louis locations reopened on Monday as branches of Central Bank of Kansas City. As of September 25, 2009, Prosperan Bank had total assets of $27.7 million and total deposits of approximately $27.9 million. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $9.2 million.

United Commercial Bank, San Francisco, CA

United Commercial Bank’s assets were transferred to East West Bank of Pasadena, CA by the FDIC in order to protect depositors. This agreement included all U.S. branches of United Commercial Bank, the Hong Kong branch of United Commercial Bank, and the subsidiary of United Commercial Bank headquartered in Shanghai, China. United Commercial Bank locations reopened on Monday as branches of East West Bank. As of October 23, 2009, Prosperan Bank had total assets of $11.2 billion and total deposits of approximately $7.5 billion. The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $1.4 billion. United Commercial was the 14th bank to fail in California this year, and the largest of the banks to fail on Friday.

The total amount that this past weeks failures is estimated to have cost the FDIC’s Deposit Insurance Fund (DIF) is $1.53 billion. For more information on the 2009 bank failures and an interactive map of the location of bank closures, visit our continually updated Failed Bank List page here.

by virtualart

For retailers, business has been slow and still is. If you are a regular employee (or were, for that matter) you may have had to make do with less hours at work or worse, been laid off altogether. The value of your home or property may have plunged to unimaginable depths, that is, if you haven’t lost one to foreclosure yet. We also saw our savings interest dwindle into almost nothing. As far as this economic crisis is concerned, everyone’s got their own story to tell. The recession has become the villain in what had previously been a comfortable existence.

But guess what? Not everything about this recession has been all that bad. In fact, we may even have benefited from it in more ways than we can imagine or think of. Here are some reasons why the recession can also be viewed from a positive angle:

Mortgage Rates Went Way Down

Coupled with low real estate prices, record-low mortgage rates made it possible for home buyers to realize their goal of home ownership. Or, for those who already own a property, refinancing their mortgage and locking in to the current low rates has allowed them to take advantage of huge savings, and stash away some extra funds.

Consumers Pay More Attention to Credit Card Debt

With banks trying to generate more revenue from credit cards by raising interest rates and imposing stricter penalties, cardholders woke up and took notice of how credit card interest fees and other charges were slowly burying them in a mountain of debt. Some had to resort to debt consolidation and debt help, but that is still better than maintaining that devil-may-care attitude that consumers usually had when shopping with the plastic.

Americans have Become Better Savers

Deposit account rates may have dipped to lows previously unseen but that certainly didn’t stop individuals from realizing that spending less and saving more is vital as things will not always be as rosy as they were. Individuals have shut their wallets and have instead gone on a saving spree. From a zero percent savings rate in April 2008, it has gone up to 6.9% as of last May 2009.

Families Were able to Make do with Leaner Paychecks

In the midst of dismal economic activity, companies and business owners cancelled bonuses, cut employees’ work hours, mandated worker furloughs, or completely left them out of jobs. Whatever the case is with your household, the fact is, many have had to cope with one less paycheck or a much smaller budget. Making lifestyle changes however, while not easy, has been doable. What’s more, we’ve also discovered that special home-cooked meals can be just as appetizing as restaurant dinners, and cable TV may be overrated.

Bank Customers are More Savvy in Shopping for Rates

Where before a rate difference of 0.50% wouldn’t have mattered all that much when rates were in the vicinity of 5% to 6%, these days that would amount to a lot, considering how low interest rates have slid down to. Its a good thing that consumers have become more adept at finding better savings deals, CD rates, and account opening bonuses.

If there’s anything good that can be said about the recession, it’s that it has helped us develop good savings habits, sensible spending practices, and positive attitudes. If we can somehow maintain all these changes long after this economic downturn is over, we would continue getting the most out of our savings, and building up a decent nest egg for the future.

Kansas State University Photo by Michael6076

Addressing the Issues

Ms. Sheila C. Bair was certainly direct in her speech, giving a bare bones account of the economic climate leading up to the crisis, and some of the steps taken this far by the FDIC in an attempt to stabilize the economy. Perhaps most interesting, however, were her comments on regulatory reform, which tackled everything from ending “too-big-to-fail” to protections for the America consumer.

Too Big to Fail

On the issue of “too big to fail,” Chairman Bair stated the importance of competition in any economy, and for an economy to be healthy, those businesses that remain viable must succeed while those which are no longer viable must fail. When companies become so large and interconnected that they will not fail despite mismanagement and excessive risk taking, then the economy suffers. Bair warned that the FDIC, which is only authorized to deal with depository institutions, does not have the power to close complex financial institution, but without someone to regulate these institutions, we are setting ourselves up to have to repeat the bailouts of the past year.

Sheila C. Bair

In order to deal with this issue, Bair said that the US must work to close regulatory gaps and create incentives for companies to reduce their size and complexity. She suggested that the FDIC model, adapted so that it applies to more complex financial institutions, would help regulate these larger companies. Also, by imposing fees on riskier activities and requiring higher capital ratios for large, complex institutions, banks would be less willing to take on high risk activities. Bair also suggested that the subsidiaries and affiliates of these large companies remain more independent, so that they can be easily break up and fail separately if faced with liquidation.

Stronger and More Resilient Financial System

On moving forward with regulatory systems, Sheila C. Bair proposed a Systemic Risk Council, which would be made up of a group of national regulatory agencies and have the power to step in and take action to prevent future situations like that of this past year. The Council would be able to set industry standards and fill regulatory gaps to ensure that the public interest is being protected.

This focus on the protection of the consumer was one of Bair’s main takeaway points. She emphasized the importance of banking transparency in the future, saying that many of the problems of the past year, especially in the mortgage sector, were due to confusing contracts and hidden fees that banks impose on unsuspecting consumers. By focusing on protecting the consumer and being clear about the terms of loans and accounts, she thinks that everyone will benefit, as many of the problems with bad credit and unpaid loans by uninformed consumers will disappear.