“For FDIC: April Showers Become Torrential Downpour”

Twenty-three Banks Seized in April

March went out like a lion, April came in like a lamb for the FDIC. But after the first two weeks of April…

All Hell broke loose,

In March, 19 banks were closed by the Federal Deposit Insurance Corporation. In the first two weeks of April the FDIC had to take over only 1 bank, a sign that things might be improving. But there were three more weeks in the month and they were disastrous for the FDIC and for their Deposit Insurance Fund. What started out so quietly ended with 23 bank foreclosures by the end of the month bringing this year’s total to 64.

Yesterday the 7 closures included 3 large banks in Puerto Rico. The week before all 7 banks taken over were in Illinois and the previous week 3 Florida and 2 more California banks were among the 8 banks seized.

Since the beginning of 2008, just over two years, 229 banks, young and old, large and small, urban and rural have been lost. No financial institution has been immune to the virility of this crisis

How much damage did April do to the banking system?

It was also a very destructive month for the Federal Deposit Insurance Fund. The month will cost the Fund approximately $9.5 billion. That is the largest drain to the fund in any month with the exception of July of 2008 which included the closure of IndyMac Bank. IndyMac cost the FDIC $8.9 billion alone. Only two other banks were closed that month, one in Newport Beach and one in Reno, Nevada. Together they cost the Fund $1.7 billion.

In addition to the $9.5 billion the FDIC entered into a shared loss agreement with TD Bank Financial of over $2 billion for the three Florida banks taken over on April 16th.

This past Friday was especially damaging to the Fund. The 3 Puerto Rican banks cost nearly $5.3 billion and the other 4 totaled $2.05 billion. The final week of April, at $7.3 billion, was also the worst week since the loss of IndyMac.

The $9.5 billion loss in April pulls nearly half of the remaining reserve from the FDIF.

The foreclosures are especially hard on some states: Georgia, Illinois, California, and Florida. Florida and California have now each lost 25 banks since the beginning of 2008. Illinois has suddenly jumped to 32, but Georgia still leads with 37 banks seized in just over two years.

In the first 4 months of 2010 the number of banks failed is up 135% from the same period in 2009. The cost to the FDIC has also increased tremendously.

At this rate it won’t be long before the taxpayers are footing the bill for the bank failures.

It is too early to make comparisons with the Savings and Loan crisis which lasted over 8 years. Over 1,600 Savings and Loans and banks failed in that time. But the dynamics of the current crisis are similar to the crisis in the early 80’s. And this crisis seems to be gathering steam in the same way the S&L crisis did.

In my next banking article, “Small Banks Reel, While Big Banks Steal,” I’ll describe the untenable relationship between the regulators and banks, and the cost to the American people.

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