Oct 23, 2009 : U.S. bank failures pass 100 mark for 2009

[Watchman]

U.S. bank failures pass 100 mark for 2009
Fri Oct 23, 2009 8:45pm EDT

By Karey Wutkowski

WASHINGTON (Reuters) - The number of U.S. bank failures this year reached 106 on Friday, when regulators closed seven more small banks, marking the highest annual level of failed institutions since 1992 during the savings and loan crisis.

The number is expected to continue rising as the industry tries to get a handle on commercial real estate loans that will continue to deteriorate as more strip malls go vacant and condo developments remain stalled.

The seven banks that were shuttered on Friday all had assets under $350 million. The largest bank failure in the current crisis was Washington Mutual, which had assets of $307 billion when it was shuttered in September 2008.

Federal Deposit Insurance Corp said the banks that were closed on Friday were Partners Bank in Florida, American United Bank in Georgia, Hillcrest Bank Florida, Flagship National Bank in Florida, Bank of Elmwood in Wisconsin, Riverview Community Bank in Minnesota, and First Dupage Bank in Illinois.

Those failures brought the number of closings past 100 for the year, and is the first time the annual number of closures has reached that level since 1992 when 181 banks failed. There were 25 bank failures in 2008, up from three in 2007.

Banks are still cleaning up their balance sheets from the recent credit boom that fueled banks' appetite to extend loans, many with poor underwriting and triggers that caused borrowers' payments to spike to unaffordable levels.

Community banks, especially, built up high concentrations of commercial real estate loans for developments that have failed to attract tenants or have become vacant.

FDIC Chairman Sheila Bair has said the banking industry's recovery is expected to lag the improvement in the overall economy.

"Some banks continue to face serious challenges but the overwhelming majority will weather this economic storm," Bair said in a video message posted on the agency's website on Friday evening.

She emphasized that bank customers' money is safe and that the FDIC has never lost a penny on insured deposits. The agency insures accounts up to $250,000.

Bair told Reuters Washington Summit this week, "Obviously, the pace of bank failures has picked up and it's going to continue into and through next year. But I think it's not nearly where we were during the S&L days."

At the peak of the S&L crisis in 1989, regulators closed 534 banks.

COST OF FAILURE

The seven failures are expected to cost the FDIC's fund that safeguards bank deposits $365.7 million, and come as the agency is asking banks to prepay three years of assessments.

Bank failures have drained the fund's balance, which turned negative at the end of the third quarter. However, the FDIC has additional money already set aside to handle more closings.