Bank closures continue at a worrisome pace. The FDIC had to takeover five (5) more banks on Friday bringing the total banks seized to 77 plus in 2009. The plus is Guaranty Financial, a large Texas bank, which may now have a buyer.
BB&T Corp. was this week’s recipient of a sweet deal from the FDIC.
Though BB&T’s deal to take over Alabama based Colonial Bank is a great opportunity, a sweet deal with ‘minimal risk,’ BB&T appears to be a worthwhile receiver. BB&T receives 356 branches, mostly in Florida and Alabama, $20 billion in deposits, and will purchase $22 billion in assets. For its part the FDIC agrees to loss sharing of $15 billion.
The FDIC estimates that the failure of Colonial will cost $2.8 billion from the Deposit Insurance Fund.
The other four banks, two in Arizona, one in Pennsylvania, and Community Bank in Las Vegas, were dealt with in different ways by the FDIC. The Arizona and Pennsylvania banks were assumed by other banks, but the Las Vegas bank required the creation of a Deposit Insurance National Bank to facilitate resolution.
The forming of a Deposit Insurance National Bank could signal future hurdles for banking in Nevada.
Nevada is currently the state with the highest ratio of home foreclosures in the country, one in every 47 properties. And Nevada could become one of the most volatile markets in the rising commercial and construction loan defaults putting even more pressure on the state’s banking system.
The FDIC has done a stellar job and, unlike other government agencies, learned a lot from their successful unwinding of the Savings and Loan Crisis. The application of those lessons to the current crisis has surely prevented a deepening of the crisis.
The future of banking continues to look ominous and could remain a problem for many years to come.
But the biggest problem looming in banking today, and a potentially huge problem for the American taxpayer, is BIG Banks.
Until Congress does something to break-up these behemoths that caused the banking crisis in an efficient and least destructive manner the economy will remain in a dangerous and precarious state.
There are still hidden and shadowy toxic assets in the big banks that could still bring down the entire global economy. The government needs to go through a forensic accounting to clear out all the lies and omissions of these predatory institutions. The stress test went only so far and is already obsolete. If they are allowed to continue to operate without a clear accounting then the Fed and Treasury have again failed at their jobs.
Until then expect a continuing slide into the abyss in the banking system.