Bank failures 10/2009

The seven new bank failures on Friday, October 23, 2009 brings the total for the year up to 106 – the most bank failures since the savings and loan crisis in 1992. 106 is still small compared to the 416 unnamed banks on the FDIC’s watch list. Which way is the trend going? Where are the bank failures taking place? See below.

Which way is the trend going?

During the current recession, the month with the most bank failures (so far), was July 2009 with 24. Although failures have slowed down, the six month trend is still upward.

Where are the bank failures taking place?

Most of the bank failures so far have taken place in the southeast (Georgia and Florida) and southwest (California and Nevada). Illinois also ranks high on the list. What do these states have in common?

These states are suffering from a severe housing bust, and are suffering from the highest unemployment rates. There are currently only 14 states with unemployment over 10%, and all five of these states fall into that category.

Where are we going from here?
The facts end here. Now it’s a matter of prediction. I don’t see any “green shoots”. I don’t expect a quick turnaround. I expect bank failures to continue and become more frequent. I expect the FDIC to run out of money shortly. The FDIC will either require multiple years of pre-payments from the banks, or it will tap into its credit line with the US Treasury. If the FDIC asks for bank pre-payments, the stuggling banks will come under even more stress. I expect the FDIC to tap into its $500 billion credit line from the US Treasury. What happens if that credit line runs dry? There will be an even bigger one.