Wednesday, October 28, 2009

106 Bank Failures In Perspective

So far this year 106 banks have failed out of 8,195 FDIC-insured institutions, or slightly more than 1% of all banks. How does that compare to previous periods of financial stress and episodes of bank failures, and is there anything positive about bank failures?

The graph above displays annual bank failures (
data here) from 1930 to 2009, showing the two most serious banking crises in U.S. history, the Great Depression (9,146 banks failed from 1930-1933) and the S&L Crisis (2,935 banks failed from 1980-1994). Compared to those two periods, 106 bank failures in a single year out of more than 8,000 banks in total, does appear pretty inconsequential.

The graph below shows annual bank failures since 1970 only, and puts some further perspective on the 106 bank failures this year, compared to the S&L crisis when almost 3,000 banks failed in total, and there was an entire decade when banks were failing at a rate of more 100 per year.

Further analysis shows that the assets of the 106 failed banks in 2009 totaled $106 billion (
FDIC data here), which represents only 8/10 of one percent of the total U.S. bank assets, currently $13.301 trillion (data here). During the peak of the S&L crisis in 1989, failed bank assets were 3.5% of total bank assets, or more than four times the current level.

Certainly we can expect some more bank failures to follow this year, considering that there were 416 “problem institutions” listed by the FDIC in June. But by comparison, there were almost 1,500 banks on that same list in 1990, and more than 1,000 in both 1991 and 1992 during the S&L crisis.


Read more of my bank failure analysis here at The Enterprise Blog.

8 Comments:

At 10/28/2009 11:06 AM, Anonymous Benny The Real Free Thinker said...

I think this is a worthy chart. Yet, I wonder, what about the dollar volume of banks that would have collapsed, save for federal intervention?
Should this chart be taken as proof that early and aggressive intervention by the feds to save banks is warranted?

 
At 10/28/2009 11:57 AM, Blogger Audacity17 said...

Of course there aren't many bank failures....the laws are being ignored. Karl Deninger is doing the heavy lifting on this.

http://market-ticker.denninger.net/archives/1519-How-To-Stop-The-Pretending.html

 
At 10/28/2009 12:59 PM, Blogger Steve said...

40% of deposits are held by Citi, BoA, JPM (WaMu) and WellsFargo (Wachovia), totaling $3.8 Trillion.

The Fed and Treasury stepped in to prevent failures of those banks, to the tune of hundreds of billions of dollars via many facilities, because the FDIC couldn't or wouldn't.

Thus FDIC-resolved 'bank failures' look small, when they really should be huge, distorting official FDIC statistics.

See: http://blogs.reuters.com/rolfe-winkler/2009/09/15/break-up-the-big-banks/

 
At 10/28/2009 1:53 PM, Anonymous Anonymous said...

I think Benny and Steve are on the right path. There was minimal federal intervention (other than mop-up operations via the Resolution Trust Corp)during the S&L crisis.

A more interesting chart would be a comparison of the loss or deficiency ratios for failed bank assets during each episode.

Putting things in perspective, the loss per dollar of assets commencing in the 2008 episode appears to be much more severe.

 
At 10/28/2009 4:12 PM, Anonymous Benny Telling It Like It Is Man said...

Back a few eons ago, when I worked in the S&L industry, we used to say we believed in two things, "Free enterprise and Reg. Q."
Reg Q allowed us to pay more for passbook accounts than banks.
And that is where we are today. Everybody "believes in free and and____________________."
The __________is a rural subsidy, a HUD program, a federal guarantee on deposits or a million other items.
Hell, even Dr. Perry has health insurance paid for by taxpayers, and teaches at a public university. So, he opposes public health insurace, but is for public health insurance for public university professors.
Should we privatize public universities? Bet we would save a lot of taxpayer money.
Like I used to say, "I believe in free enterprise and Reg Q."

 
At 10/28/2009 11:08 PM, Blogger Bill said...

Dr. Perry: I am with you on the general theme that the banking dislocations today are not as great as in past downturns but arent the bank failure numbers skewed by the fact that there were more, smaller banks in the 1930s and 1980s than today? Hence, there were more around to fail. Perhaps a more accurate stat would be to show the ratio of failed banks to solvent banks. Any idea as to this?

 
At 10/29/2009 11:48 AM, Blogger Mike said...

In my view until the govt addresses the basic structural problems in our economy of too much debt and not enough savings or capital, we will not have a sustainable economic recovery and banks will continue contributing further toward the problems. So while the stock market can stay irrational in the shorter term, in the long run I believe it will go back to reflecting the fundamentals of our boom and bust economy. And that's why I believe that for long term investors a better portfolio allocation is in cash and gold. I think the gold price will continue to go up due to a lack of confidence in our government's policies and in fiat currencies. I recently read some very interesting articles on these topics at http://www.goldalert.com/, which discuss the relationship between the dollar, the gold price, and gold mining companies given the Federal Reserve's monetary policies. I thought the article titled "Gold Price Up, Dollar Down - Does it Really Matter?" was particularly useful for investors to read to get a better sense of the relationship between these asset classes in these uncertain economic times. There are many unintended consequences of these policies that I believe have yet to be fully recognized.

 
At 10/30/2009 11:49 PM, Anonymous Sacramento said...

Further analysis shows that the assets of the 106 failed banks in 2009 totaled $106 billion (FDIC data here), which represents only 8/10 of one percent of the total U.S. bank assets, currently $13.301 trillion (data here). During the peak of the S&L crisis in 1989, failed bank assets were 3.5% of total bank assets, or more than four times the current level.

You are not allowed to use the word "analysis". There is no "analysis" here.

The largest banks in the nation survive only because of massive government bailouts. Why don't you throw those assets in as de facto failures?

There are many, many more bank failures to come. Nine banks (under one holding company) fell today. One was the fourth largest failure to date.

There will likely be a closing hiatus around Thanksgiving, but closures don't follow calendar year schedules as your amateur "analysis" suggests. By any measure, this crisis is bad and getting worse.

 

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