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.  

FDIC Report Suggests Banks Are Surviving Well

The charts above were created using the most recent banking data from 8,560 FDIC-insured banks, throughout the third quarter 2007, showing that:

1. Total assets of commercial banks increased by a record $446.3 billion (3.6%) to $12,707 billion, eclipsing the previous quarterly high of $331.6 billion set in the first quarter of 2006 (top chart above). Loans secured by real estate at commercial banks were up by 5.3% in the third quarter 2007 vs. the same quarter last year (see second chart above), suggesting that credit tightening in response to the subprime troubles is not a problem for U.S. banks.

2. The "net-charge offs to FDIC banks" (loans removed from balance sheet because of uncollectibility) in 2007 has been 0.50% (or about 1 loan in 200), slightly higher than last year, but about the same as 2005 (0.49%) and much lower than 2003 (0.78%), and about half the rate in 2002 (0.97%), see third chart above.

3. The number of "problem institutions" in 2007 (65 banks) is slightly higher than 2006 (50 banks) and 2005 (52 banks) as might be expected given the recent troubles in the financial sector, but lower than 2004 (80 banks), 2003 (116 banks) and about half the number in 2002 (136 banks), see bottom chart.

The FDIC report presents a picture of a U.S. banking system that is overall still very healthy, while it absorbs some of the negative effects of the subprime mortgage troubles. On the positive side, commercial loan growth set another new record in the third quarter 2007, residential mortgage loans registered the largest quarterly increase since the second quarter of 2006, "problem list" assets declined, more than 99% of insured institutions met or exceeded the highest regulatory capital requirements, more than half of all banks (51%) reported higher quarterly earnings compared to the third quarter of 2006, and net interest income increased by the best year-over-year growth rate in five years (6.5%). No credit crunch, and bank performance is healthy.

On the negative side, there are some effects of the subprime mortgage troubles: the number of banks on the FDIC's "Problem List" increased from 61 to 65 in the third quarter (probably not a big deal since there are 8,560 banks), and loan-loss provisions totaled $16.6 billion - the largest quarterly loss provision since the second quarter of 1987.

Bottom Line: As I mentioned in several recent posts, not a single U.S. bank failed in either 2005 or 2006, and only 3 banks failed in 2007 (out of 8,560 banks). The banking system today is probably much stronger than it was was in 2002 or 2003 on many dimensions (net charge-off rates, problem institutions and bank failures), and much stronger and more stable than most people give it credit for. Certainly the subprime troubles have shown some effect on banks, which is to be expected. But the fact that more than 99% of insured U.S. institutions currently meet or exceed the highest regulatory capital requirements suggests that the U.S. banking system is healthy and will absorb and survive the current turmoil in the subprime mortgage sector.

FDIC Quarterly Banking Report Suggests That U.S. Banks Have Returned to Pre-Recession Conditions

The FDIC released its Quarterly Banking Profile today for the second quarter, here are some highlights:

1. U.S. banks earned a total of $34.5 billion from April through June, a 20.7% increase compared to Q2 2011 (see chart above). Almost two out of every three (62.7%) of the 7,246 FDIC-insured banks reported higher earnings than a year ago. Only 10.9% were unprofitable, down from 15.7% in Q2 2011.  The increase in profits was the 12th consecutive year-over-year increase in quarterly net income for U.S. banks starting in Q3 2009, following ten consecutive decreases from Q1 2007 to Q2 2009. 

2. The $69.3 billion bank net income for the first half of 2012 was 21% above the same period last year, and highest profits for January-June since the $72.5 billion in 2007, five years go. 

3. Banks set aside $14.2 billion in provisions for loan losses in Q2, a 26.2% decline from Q2 2011, and is the smallest quarterly total in five years.

4. Net loan charge-offs (removed from balance sheet because of uncollectibility) totaled $20.5 billion in Q2, an $8.4 billion (29.1%) reduction from Q2 2011 and is the eighth consecutive quarter that charge-offs have declined from year-earlier levels and the lowest quarterly charge-off total since Q1 2008. All major loan categories posted lower charge-offs compared with a year ago.

5. Noncurrent loan balances (loans 90 days or more past due) declined for a ninth consecutive quarter, falling by $12.9 billion (4.2%). Noncurrent levels fell in all major loan categories.

6. The number of institutions on the FDIC’s “Problem List” fell for a fifth consecutive quarter, from 772 to 732. Total assets of “problem” institutions declined from $291 billion to $282 billion.

7. Fifteen banks failed during Q2 (following 16 failed banks in Q1) which is the lowest number of failed banks in a quarter since 12 banks failed in Q4 2008. 

MP: Overall, this is a very positive report for the financial conditions of U.S. banks in Q2: profits are strong (+20.7%), provisions for loan losses are at a 5-year low, net loan charge-offs fell by 29% in Q2 to a four-year low, noncurrent loans declined for the 9th quarter, the number of "problem banks" fell and the number of failed banks fell to a three- and-a-half year low.  Along with a gradually recovering overall economy, U.S. banks have gradually recovered and the financial health of the banking system has returned t0 pre-recession conditions. 

The Imaginary Hobgoblin of "The Unbanked"

In Sunday's Washington Post, personal finance columnist Michelle Singletary provides some unbelievable commentary about the 60 million Americans who decide voluntarily to forego bank accounts, and she then goes on to support government intervention through the Community Reinvestment Act (didn't that contribute to the housing crash?) to "open banks' doors to all." 

Here is the opening:

Millions of Americans -- 60 million, in fact -- conduct their day-to-day financial business outside the banking system, leaving many to be preyed upon by payday-loan companies, rent-to-own establishments and other non-bank institutions.

Banks have largely ignored the unbanked and underbanked, arguing that it's difficult to figure out how to make money off them. But the Federal Deposit Insurance Corp. says it may look at using the Community Reinvestment Act -- and the weight that the act carries in bank examinations -- to encourage financial institutions to provide low-cost banking services and products.

A new FDIC report found that 17 million U.S. adults are unbanked. An additional 43 million are classified as underbanked. You're considered unbanked if you don't have a checking or savings account. The FDIC defined underbanked households as those that have a checking or savings account but use non-bank money orders, check-cashing services, payday loans, rent-to-own agreements or pawnshops at least once a year.

The FDIC survey, conducted by the Census Bureau, is the most comprehensive look to date at the unbanked and underbanked. The survey finally provides proof of the problem that consumer advocates have been trying to address for years, lobbying for products and services for the millions of people shut out from the traditional banking system. Under a 2005 law, the FDIC is required to monitor the financial industry's efforts to bring people into the mainstream banking system.

MP: Where to start? Here's an alternative version of the opening sentence:

Millions of Americans -- 60 million, in fact -- VOLUNTARILY conduct their day-to-day financial business outside the banking system, leaving many to be preyed upon SERVED VERY WELL by payday-loan companies, rent-to-own establishments and other non-bank institutions.

Second sentence:

Banks have largely ignored the unbanked and underbanked, arguing that it's difficult to figure out how to make money off them.

That statement seems ludicrous from beginning to end, and makes it appear that banks routinely turn certain people down when they show up with funds and attempt to open a checking or savings account.  Banks make money by converting savings and checking deposits into loans, and would therefore have no incentive to ignore or turn down new customers bringing new deposits to the bank (their main input), and banks would have no trouble at all figuring out how to make money from any customer's deposits - they loan them out!   

Given the proliferation of U.S. banks (more than 8,000) and the proliferation of banks advertising for new accounts and for free checking (examples here, here, here and here for the DC area), it seems absurd to suggest that new government regulations are necessary to address the imaginary problem of "unbanked and the underbanked."

H.L. Mencken accurately sums up the situation this way:

The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.

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.

MBA: Commercial Mortgage Delinquencies End 2007 At or Near Record Lows

Washington, DC (March 10) – The Mortgage Bankers Association (MBA) released its inaugural analysis of Commercial/Multifamily Mortgage Delinquency Rates for Major Investor Groups that shows delinquency rates ended 2007 at or near record lows for most major investor groups (see charts above, click to enlarge). Fourth quarter delinquency rates for four of the five largest investor groups – commercial mortgage-backed securities (CMBS), life companies, Fannie Mae and Freddie Mac – remained at or near historically low levels. For the fifth group, FDIC-insured commercial banks and thrifts, delinquency rates were lower at 2007’s year-end than during 5 of the previous 11 years and 10 of the previous 16 years. Together these groups hold more than 80% of commercial/multifamily mortgage debt outstanding.

“This is an important new analysis that helps cut through much of the recent ‘noise’ on commercial real estate finance,” said Steve Graves of the MBA. “Despite a great deal of attention being paid to economic uncertainty, it is reassuring to know that the performance of commercial and multifamily mortgage loans and bonds has remained so fundamentally sound.”

For life insurance company portfolios, the rate was 0.01% (see bottom chart above) – with only nine delinquent loans, amounting less than $19 million, out of a reported total of $245 billion. For Freddie Mac, the fourth-quarter rate was 0.02%. For Fannie Mae, it was 0.08%. For commercial mortgage-backed securities, the delinquency rate was 0.40%. Even for the fifth group – the FDIC-insured institutions, which had a delinquency rate of 0.80% – the rate of past-due loans was still lower than in five of the previous 11 years and 10 of the previous 16 years, the MBA found. Of $1.2 trillion of commercial/multifamily loans at FDIC-insured banks and thrifts, only $9 billion was 90+ days delinquent.

Comment: The general media consensus seems to be that credit is drying up, and the entire U.S. credit market is collapsing and getting worse by the day. This recent report from the MBA shows that the commercial real estate has never been healthier, at least in terms of delinquencies on commercial real estate loans, which are at or near all-time lows. It's not all gloom and doom.

We're Still A Long Way From a Real Banking Crisis

So far this year, 11 U.S. banks have failed (FDIC data here), out of 8,451 FDIC-insured banks, matching the 11 bank failures in 2002. The last time more than 11 banks failed was 1994, when 15 banks failed on the tail end of the S&L crisis (see chart above). In total, almost 3,000 banks failed during the 15-year S&L crisis between 1980 and 1994.

The FDIC has currently identified 117 "problem banks" (through June 2008) with assets of $78 billion (data here), the highest level since 2002 when there were 136 "problem banks" following the 2001 recession (see chart below). This compares to the 1990-1992 period when there were more than 1,000 problem banks in each of those three years at the end of the S&L crisis, along with a recession in 1990-1991.

As a percent of total commercial bank assets (data here), the assets of troubled banks are currently at 0.71% (through second quarter), the highest level since 1995, but far below the 20-25 percent levels in the early 1990s (see chart below).


We still have more than three months to go in the year, and there will certainly be more bank failures to come in 2008. There are also two more quarters of banking data to be reported, and there will probably be more banks added to the problem bank list. But at least back to the 1930s, there has never been a 5-year period of banking stability like 2003-2007 when only 10 banks failed, and the banking industry has probably never been in a better position to absorb a shock like the current subprime problems.

Problem banks are still a relatively small share (1.38%) of the 8,451 commercial banks, 98.62% of banks are not "problem banks," the assets of the problem banks represent less than 3/4 of 1% of total commercial bank assets, and therefore 99.29% of commercial bank assets are not in "problem banks."

Bottom Line: Despite the troubles in the banking industry, we're still a long way from anything close to a real banking crisis like the S&L crisis.

Bank Profits Are Highest Since Early 2007

From the FDIC's Quarterly Banking Profile:

"Commercial banks and savings institutions insured by the Federal Deposit Insurance Corporation (FDIC) reported an aggregate profit of $29 billion in the first quarter of 2011, an $11.6 billion improvement (66.5 percent) from the $17.4 billion in net income the industry reported in the first quarter of 2010. This is the seventh consecutive quarter that earnings registered a year-over-year increase. For the sixth consecutive quarter, reduced provisions for loan losses drove the improvement in earnings.  Net income was the best for the industry since the $36.8 billion earned in the second quarter of 2007 (see chart above).

"The industry shows continuing signs of improvement," said FDIC Chairman Sheila C. Bair. She added, "though there is a limit to how far reductions in loan-loss provisions can boost industry earnings."

More than half of all institutions (56 percent) reported better quarterly net income from a year ago, and only 15 percent had a net loss for the quarter. The average return on assets (ROA), a basic yardstick of profitability, rose to 0.87 percent from 0.53 percent a year ago.

The number of institutions on the "Problem List" flattened. The net increase of four, to 888, is the smallest in three-and-a-half years. The number of "problem" institutions is the highest since March 31, 1993, when there were 928. Total assets of "problem" institutions increased from $390 billion to $397 billion. Twenty-six insured institutions failed during the first quarter, the smallest number in the last seven quarters."

MP: Despite the strong rebound in bank profits to pre-recession levels, there was a 3.2% annual decline in bank revenues in the first quarter and an accompanying decline in loan balances, suggesting that bank credit availability is still lagging (see Washington Post story here).  But the fact that bank profits have fully recovered to early 2007 levels is another sign that the worst of the financial crisis is far behind us, and the U.S. banking system is once again healthy and profitable.

Bank Profits and Average ROA Highest Since 2006

From today's Quarterly Banking Profile from the FDIC:

"For all of 2011, bank net income totaled $119.5 billion, an increase of $34 billion (39.8%) from 2010 earnings. This is the highest annual net income total since the industry earned $145.2 billion in 2006. More than two out of every three banks (66.9%) reported improved earnings in 2011, and only 15.5 percent reported a net loss for the year. In 2010, 22.1 percent of all banks reported full-year net losses. The average ROA in 2011 was 0.88%, up from 0.65% in 2010. The improvement in full-year net income was made possible by an $81.1 billion reduction in loan loss provisions."

MP: Bank profits last year were almost 20% above the pre-recession 2007 level, the average ROA was the highest since 2006, and the number of bank failures in 2011 was 92, down from 157 in 2010 and 140 in 2009.  Today's FDIC report provides evidence that U.S. banks are gradually recovering from the financial crisis of 2008-2009, and in 2011 had their best year since 2006.

Update 1: Over the last three months, the KBW Bank Index has gained more than 25% compared to a 15% increase in the S&P500 over that period.  

Update 2: See related LA Times story "Bank earnings hit five-year high in 2011."

The Unbanked: Xenophobia and Elite Paternalism

Sometimes a comment on a CD post is so good that it deserves its own post.  Milton Recht's comment below on this CD post about the "nonproblem" of "the unbanked" is one such example:

If one receives a check and wants to use it to pay a bill, it is difficult at a bank to accomplish the goal. If the check is deposited into a checking account without sufficient funds in the account to cover the check, it can be several days before the check clears. You cannot pay the bank to have the cash immediately. However, you can go to a check casher, pay a fee, have the cash immediately, and get a money order to pay the bill or pay your utility bill right there at the check casher with the funds from the check. Additionally, many hard working people cannot get to a bank during their working day and check cashers and other non-bank service providers are open at more convenient times, speak the foreign languages of their customers, and if necessary, easily remit the funds to another country.

The reason there are unbanked is that banks either do not provide the needed service within the necessary time frame of people who need to live from check to check, or the total cost, including things like getting your electric turned off, are higher at banks than at the alternatives that the unbanked use.

The FDIC fails to understand it is a rational economic decision that the unbanked are making. Unless there are unmet needs of the unbanked, it should leave well enough alone. If banks could provide the needed services at a lower price and more conveniently, the banks will increase their market share of this clientele. Otherwise, the unbanked population will remain. The non-bank providers (check cashing and payday-loan companies) are filling a market need that traditional banks are not meeting.

To me it is a subtle form of xenophobia and elite paternalism. The regulatory class of people (e.g. FDIC) determines that its way of doing things is the only way and the uneducated and minority ethnic groups are too ill informed and irrational to know what they are doing and what is best for them. The groups must be converted for their own good. The regulators justify their concern and actions by doing some partial and incorrect analysis that shows the group in question is overpaying and therefore it is necessary for the government to step in and protect people against their will and voluntary actions.

Banking Fact of the Day

Number of bank failures this year so far: 45 (FDIC data here, click on "Produce Report").

Total Assets of the 45 failed banks: $36.965 billion

Total Bank Assets of All 8,246 FDIC-insured banks: $13.542 trillion (data here)

Failed Bank Assets as a Percent of Total Bank Assets: .27% (or about 1/4 of 1%)


Bottom Line: The worst of the banking crisis is behind us, the percent last year was 2.69%.

Only 2 Banks Have Failed in 2008

Number of FDIC-insured banks in U.S.: 8,533

Number of FDIC-insured banks that have failed in 2008: 2

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.

Bank Earnings Reach 5-Year High in Q1 2012

The FDIC reported this week that bank profits in the first quarter of 2012 increased to $35.3 billion, the highest level in almost five years going back to the second quarter of 2007 (see chart above, data here).   That represents a 23% gain from the first quarter last year, and a 38% improvement from the previous quarter.  In other signs of improvements in the banking industry's financial condition, noncurrent loan rates and net chargeoff rates decreased in the first quarter this year compared to the same quarter last year, and in both cases there were decreases for all three loan categories: real estate, business and consumer.

Troubled Banks in 1991 Were 25X Worse Than Now

From a comment by "stilettoheels" on this CD post: "Yep. The commercial banks are in just fine shape. Bottom line: In Q3.08, the banks are back to the early 1990s recession by most measures. Once the early 1980s are taken out, then it will be the Great Depression II."

The top chart above shows the number of FDIC "problem institutions" annually back to 1990 (year to date for 2008). There are currently 171 problem banks, which is higher than the peak of 136 problem banks in 2002 following the 2001 recession, but far fewer than in the earlier years like 1990 (1,496 troubled banks), 1991 (1,430), 1992 (1,066), 1993 (575), 1994 (318) and 1995 (193).

The 171 banks currently identified as "problem institutions" have assets of $116 billion, which is 1.04% of the total commercial bank assets of $11,115 billion average for 2008, and only 0.97% of total bank assets of almost $12,000 billion for October 2008 (data here). The bottom chart above shows that the current level of about 1% of bank assets being held by troubled banks is nowhere close to the levels of 10-25% in 1990, 1991, 1992 and 1993. So by this measure, troubled banks in the early 1990s were 10 to 25 times "more troubled" than banks today.

Bottom Line: In 1990 there were almost 9 times as many troubled banks as today, and in 1991 the percent of total bank assets held by troubled banks was about 25 times higher than 2008. We're nowhere close to the troubled bank situation of the early 1990s. As in 25 is a much bigger number than 1, and 1 is nowhere close to 25. And if we're not even close to the weak banking conditions of the early 1990s, we're light years from Great Depression II.

Q.E.D.

FDIC Special: Buy a Toaster and Get a Free Bank

Compared to Canada, The U.S. Has Way TOO Many Banks: Bank Failures Might Be Good for the U.S.

With more than 8,000 banks, does the U.S. have too many banks? The comparisons to Canada below provide some perspective. According to Wikipedia, Canada has a total of 72 banks, and that number is very high by historical standards.

From 1920 to 1980, Canada had only 11 banks. By May 2006, that number had increased to more than 60 in the wake of regulatory changes permitting the entry of foreign competitors.

In contrast, the U.S. currently has almost 8,200 banks, or about 114 banks for each one bank in Canada, see chart below.

Of course, the U.S. population (304 million) is much higher than Canada's (33 million), so the chart below shows the number of banks per million persons in each country, and the population-adjusted number of banks in the U.S. is still more than 12 times larger than Canada (27 banks per million in the U.S. compared to 2.2 banks per million in Canada).

Bottom Line: Maybe the U.S. has too many banks, and the recent bank failures are a positive development for the U.S. economy and banking system. Weak, failing banks can't facilitate the flow of credit in the economy, and the banking system is better off without those banks. Keep in mind that the assets, loans and deposits don't disappear when a weak bank fails, those assets, loans and deposits are usually taken over by a larger and/or stronger bank.

See the FDIC's list here of the 81 banks that have failed in 2009, and notice that in every case the deposits were assumed by another bank, and in most cases either all or most of the assets of the failed bank were purchased by the acquiring bank. It should also be noted that in most cases the assets/loans of the failed bank actually exceed the value of the deposits, although it's not clear how those assets are valued.

Even if we lost another 1,000 banks as some are predicting, we would still have more than ten times the number of banks in Canada, adjusting for the differences in population. We should welcome, not resist the forces of Schumpeterian creative destruction in the banking system.

The Tyranny of the Status Quo, Iron Triangle Wins

More on Wal-Mart's announcement that it would withdraw its application, filed with the Federal Deposit Insurance Corporation, to establish an industrial loan company (ILC) in Utah, from American.com:

"For all the supposed sympathy on Capitol Hill for American consumers—and especially “working families”—they don’t count for much when an organized pressure group like the banking industry comes calling. Then, our representatives in Congress become very concerned about such fallacious and unintelligible principles as “the separation of banking and commerce” and are perfectly happy to leave working families behind. From its inception, the “separation of banking and commerce” has been nothing more than a means for banks to protect themselves from competition, and it was invoked again, by people who should (and probably do) know better, to oppose the Wal-Mart application to acquire an ILC. The withdrawal of that application means America’s working families, who are Wal-Mart’s principal customers, will have to pay more for what they buy at Wal-Mart, and should thank their representatives in Congress for this privilege."

In his book "The Tyranny of the Status Quo," Milton Friedman described the "Iron Triangle" as a) special interest groups, e.g. the banking industry, b) regulators, e.g. FDIC, and c) politicians. When consumers and pro-consumer companies, e.g. Wal-Mart, go up against the Iron Triangle, it's often a lot like "three foxes and a chicken taking a vote on what to eat for lunch," (paraphrased from H.L. Mencken).

81 Bank Failures So Far in 2009: It's All Relative

So far this year, there have been 81 bank failures out of 8,195 FDIC-insured institutions, or slightly fewer than 1% of all banks. How does that compare to previous periods of financial stress and episodes of bank failures?

This first graph below shows annual bank failures (data here) from 1930 to 2009, showing the two most serious banking crises, the Great Depression (9,146 bank failures) and the S&L Crisis (2,935 bank failures).

This chart shows bank failures from 1935 to 2009, and puts the 81 bank failures this year in perspective in comparison to the S&L crisis and the second half of the Great Depression.

This chart below shows bank failures since 1970, and puts some further perspective on the 81 bank failures this year, compared to the S&L crisis.

Caveat: This analysis simply shows the number of bank failures per year, and could obviously be supplemented with data on the number and size of bank failures.

Originally posted at Carpe Diem.

Another Great Depression. Not.

Do a Google search for the phrase "since the Great Depression" and you'll get about 33,605 hits just from news reports, and 2.5 million hits on Google overall. But there are some major differences between now and the 1930s including:

Updated (thank to Michael Gordon): The money supply was decreased by 1/3 during the 1930s (the "Great Contraction"); there was no FDIC, unemployment insurance or Social Security in the early 1930s; and Congress raised taxes and imposed tariffs so high that world trade basically stopped, just to name a few differences.

The charts below illustrate some other differences:

We're nowhere close to the number of bank failures of the 1930s, when banks were failing at an average rate of almost 1,000 per year:
We're nowhere close to the 17.1% average unemployment rate of the 1930s:
On a per capita basis, real GDP is 7.6 times higher today than in 1932.

Food, clothing and shelter consumed about half of disposable income in the 1930s, compared to only about 1/3 today: