Friday, January 11, 2008

Only 1 Tiny Bank Failed During Fall Subprime Crisis

The chart above is from the FDIC's website. Notice that despite the "subprime crisis," there was only 1 bank failure in the fourth quarter of 2007, out of almost 9,000 FDIC-insured institutions. It's true that subprime troubles have fallen much harder on other sectors of the financial sector, but it's also good to know that the commercial banking sector is healthy, and survived a year of credit trouble with almost no bank failures.

The only bank to fail in the fall of 2007 was the tiny Miami Valley Bank in Lakeview, Ohio, with just $87 million in assets, or 5% of the size of the average bank, which has $1.5 billion in assets. For the entire year, only 3 banks failed in 2007; and not a single bank failed in either 2005 or 2006, as I have previously documented.

12 Comments:

At 1/11/2008 6:19 PM, Anonymous Anonymous said...

For several years, we have been listening to the "everything is going to hell in a handbasket" theme on every subject under the sun presumably because you-know-who was in the Whitehouse.

We heard about the jobless recovery and the Bush tax cuts not paying for themselves (although federal receipts have risen substantially since the Bush tax cuts were initiated). We heard that the surge would never work now that it has, the subject has been changed.

The present hysteria seems to be out of all proportion to reality with the stock market going up and down like a yo-yo. Admittedly, there are real problems in the housing sector, and financial markets. It definitely looks like there is going to be slower growth.

Anyone want to lay odds that once there is a democrat in the Whitehouse the sky will no longer be falling.

 
At 1/11/2008 6:39 PM, Anonymous Anonymous said...

Anonymous@6:19. You forgot to stick to the script. You're supposed to blame Clinton.

MJP - I just don't know what to say. The emperor's naked -- and he ain't pretty. Not even Helicopter Ben can save the Goldilocks (or is it Tinkerbell?) economy any more.

 
At 1/11/2008 8:30 PM, Blogger happyjuggler0 said...

In a bizarre kind of way this is vindication of mortgage derivatives. Once upon a time (about 15-20 years ago) this kind of meltdown in residential real estate would've decimated our banking system, radically reducing the amount of lending available to sound small businesses to grow and hire with, and necessitating a humongous taxpayer bailout.

Today however, thanks to derivatives, the bulk of the pain was sold off to hedge funds and foreign institutions long ago. As a result what would've been a really nasty recession (and expensive taxpayer bailout of the FDIC) long ago may or may turn out to be a recession soon. The fact that it is even debatable ought to be proof positive to everyone of how much better the current system is to what we had in the 80's and 90's.

None of this changes that a stupid and destructive bubble took place that is still unwinding, just that things "normally" would've been far worse if not for derivatives.

 
At 1/11/2008 9:57 PM, Anonymous Anonymous said...

Happyjuggler,

Interesting theory. We have only really heard about this from the opposite side. You raise a very interesting point.

 
At 1/11/2008 10:32 PM, Anonymous Anonymous said...

"Fall Subprime Crisis?" The subprime mess is only the tip of the iceberg and it hasn't even run to it's peak yet.

Banks? What about Mortgage Lenders going bust? http://ml-implode.com/

What about hedge funds going bust? http://hf-implode.com/

You don't really think that the acquisition of Countrywide by the Bank of America is anything but a rescue operation of a bank that was about to declare bankruptcy?

What about WaMu taking merger with J.P. Morgan Chase? Do you really think that these merger talks would be happening if WaMu was healthy?

 
At 1/11/2008 11:43 PM, Anonymous Bill Conerly said...

For historical perspective, check out FDIC statistics at http://www2.fdic.gov/hsob/SelectRpt.asp?EntryTyp=30

When I was teaching economics in the late 1970s, I'd keep my eye out for bank failures. There would always be at least one or two a semester, which makes a nice little story in class about why banks fail.

 
At 1/12/2008 10:57 AM, Anonymous marmico said...

It's a great Q3.07 quarterly banking profile other than the niggling details of:

1. declining return on assets,
2. declining return on equity,
3. rising non-current assets,
4. rising net chargeoffs,
5. declining (negative) net operating income growth,
6. rising % of unprofitable institutions, and
7. rising # of problem institutions.

I would hazard a guesstimate that the Q4.07 profile will be even uglier than this betty.

 
At 1/12/2008 11:02 AM, Anonymous Anonymous said...

Thanks, Bill, for the link.

When one looks at the number of banks failing in the past, it is significantly more from 1982 to 1993 (534 in 1989 being the peak) that the last few years.

What one needs to put the numbers into perspective is to know the total number of financial institutions in any given year.

The reduced number of failures may also reflect the consolidation of the industry which would tend to concentrate capital, thereby lowering risk. Additionally, one would expect that a larger financial institution with banks in several states would be less vulnerable to a regional downturn than a regional bank.

 
At 1/12/2008 11:27 AM, Anonymous Anonymous said...

marmico,

Thanks for your link. If one looks at 2007 and compares it with 2002, the number of problem institutions is actually higher in 2002 than 2007 (136 vs. 65) and the assets of problem banks is also higher $39B vs. $19B.

Interesting information but possibly not the point you were trying to make.

 
At 1/12/2008 1:15 PM, Blogger fakepaycheckstubs.com said...

somone spammed this site on my blog and thought someone needs to say something about it! http://www.fakepaycheckstubs.com IS THIS LEGAL? No wonder why we have the subprime mess why have when lenders USE FAKE DOCUMENTATION to help PUSH the loan through and hence MAKE thier commissions! dispicible and blatent!!! NOW BANKS ARE BAILING OUT THESE CROOKS??? SOUNDS LIKE Savings & Loan SCANDAL of the 80's ALL OVER AGAIN!!! See this site with your own eyes at http://www.fakepaycheckstubs.com

 
At 3/19/2008 11:28 AM, Anonymous Anonymous said...

Bear is down I repeat bear is down :)

http://richard-wilson.blogspot.com

 
At 5/12/2008 8:45 PM, Anonymous Anonymous said...

ANB Financial in Northwest Arkansas failed being closed Friday due to the fall of subprime crisis and commerical crisis in the area. It has been predicted several more will too close soom.

 

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