Wednesday, October 13, 2010

Bank Failures: The Worst May Be Over

From an article by Daniel Gross "Bank Failures: The Worst May Be Over":

"A close look at the FDIC's data on recent bank failures suggests that the worst may be over. Yes, banks are still failing at a record pace. But the raw number of failed banks doesn't tell the whole story. The banks that are failing these days tend to be smaller, and have fewer deposits. And because other components of the banking industry have returned to health, the cost of these failures to the FDIC's depleted deposit insurance fund is declining.

In 2008, not many banks went belly-up — only 25. But there were some doozies, including mega-banks such as Washington Mutual and IndyMac. Combined, the 25 banks that failed had $234 billion in deposits (see chart above) and $372 billion in assets. These failures cost the FDIC deposit insurance fund, which pays out to make depositors whole, $19.9 billion. Banks that failed in 2008 had median deposits of $456 million and average deposits of $9.4 billion.

In 2009, the number of failures escalated rapidly — to 140, or nearly three banks per week. But the crisis was, in some sense, less severe than it was in 2008. The failures represented a much smaller chunk of the banking system than the Class of 2008 did. Between them, these banks had $137 billion in deposits (see chart) and $167 billion in assets. The banks that failed in 2009 had median deposits of $234 million and an average of $965 million. The 140 failures caused the FDIC's deposit insurance fund to absorb $37.4 billion in losses.

In 2010, the pace of bank failures has picked up. With 11 weeks left in the year, 129 banks have already failed. (This year's list of losers can be seen here.) So it is likely more banks will fail in 2010 than did in 2009. But those banks represent a much smaller chunk of the banking sector than the Class of 2008 or 2009. Combined, this year's dead banks had just $72.4 billion in deposits (see chart) and $84.2 billion in assets. The median deposit level of a failed bank in 2010 is $264 million and the average is $560 million. 

Meanwhile, with surviving banks returning to health, and new capital entering the industry, competition for banks taken over by the FDIC has risen. The end result: bank failures have become cheaper. By my calculations, failures have cost the FDIC deposit insurance fund about $20.15 billion so far this year."

MP: Daniel Gross is careful to point out that 2010 will "still turn out to be a debacle," but it seems clear that by several important measures (total deposits of failed banks, annual FDIC losses, the average size of failed banks in a given year, etc.) the worst of the banking crisis is definitely behind us.  

8 Comments:

At 10/13/2010 5:48 PM, Blogger Don Culo said...

Thanks you President Obama for helping our banks !!!!

 
At 10/13/2010 8:02 PM, Blogger VangelV said...

Sadly Mark your the analysis that you are citing is not very good. The reason why the big banks have not failed has to do with the make believe valuations of the 'assets' held on their books. Do you really believe that all those mortgage securities have the value that is being assigned to them? And does it matter if the Fed or Fannie and Freddie took those toxic assets from the hands of the banks to save them? In either case the bad bets will have to be written down and by the time they are the USD is going to lose a huge chunk of its purchasing power.

 
At 10/15/2010 10:41 AM, Blogger juandos said...

Hey Professor Mark, consider the following from Naked Capitalism: Foreclosure Crisis Finally Hitting Banks Where it Hurts: Their Stock Prices

 
At 10/15/2010 1:48 PM, Blogger VangelV said...

Hey Professor Mark, consider the following from Naked Capitalism: Foreclosure Crisis Finally Hitting Banks Where it Hurts: Their Stock Prices.

It gets worse that that my friend. The rest of the world is figuring out that the Fed is trying to save the banks by devaluing the dollar and creating nominal price increases in the housing sector. That has caused some interesting moves in the periphery that indicate that we will see the UST bubble finally collapse and take the USD out of the picture as the reserve currency that most nations depend on. Look to Hong Kong to see how citizens are trading in their USDs and their own currency for RMB and to the commodity markets and the only thing that you can conclude is that the USD is in big trouble and that the Fed's efforts to save the financial system actually destroyed the economic system instead.

 
At 10/15/2010 2:04 PM, Blogger VangelV said...

Yeah another pseudo benny looking for attention...

Notes on Casualties in Iraq


You are quoting an organization that makes its money from the military to show that the military did not kill as many people as the peer reviewed studies are claiming? Sorry but you have no credibility on this subject.

http://tinyurl.com/37yjy82

 
At 10/15/2010 2:14 PM, Blogger juandos said...

"You are quoting an organization that makes its money from the military to show that the military did not kill as many people as the peer reviewed studies are claiming?"...

Ha! ha! ha! ha! ha! ha! ha! ha! ha!

OMG! Thanks for the laugh amigo!!!

Apparently your grasp of what the Federation of Atomic Scientists are really all about is amazingly berift of facts...

Let give you a couple of clues: They are neither actual atomic scientists or are they pro-military...

 
At 10/18/2010 5:19 AM, Blogger Parag said...

Traditionally, bank failures were related to asset quality. However, because it was inconceivable to most observers that bankers had forgotten the ingrained lessons of two generations of lending, "the economy" took the brunt of the blame for the deterioration of the banking system.
Why did the banks fail

 
At 10/18/2010 8:27 AM, Blogger VangelV said...

Traditionally, bank failures were related to asset quality. However, because it was inconceivable to most observers that bankers had forgotten the ingrained lessons of two generations of lending, "the economy" took the brunt of the blame for the deterioration of the banking system.


The banks failed because they lent money to people who could not pay them back and were holding assets that were not properly valued. It is clear that the US financial system would fail any objective audit.

 

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