U.S. Bank Failures Stretch to 110 - Analyst Blog

U.S. regulators on Friday shuttered Palos Heights, Illinois-based Palos Bank and Trust Company, pushing up U.S. bank failures to 110 so far in 2010. This compares with 140 bank failures in 2009, 25 in 2008 and only 3 in 2007.

Although the economy is showing signs of a gradual recovery with the stabilization of large financial institutions, small banks continue to be impacted by tumbling home prices, soaring loan defaults and a high unemployment rate.
 
While we expect the overall economic recovery to gain momentum soon, there remain lingering concerns in the banking industry. Failure of both residential and commercial real estate loans as a result of the credit crisis has primarily hurt banks.

As the industry absorbs bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures. Economic threats related to the European debt crisis further add to the concerns.

Palos Bank and Trust Company had total assets of about $493.4 million and total deposits of about $467.8 million as of June 30.

This recent failure represents another blow to the Federal Deposit Insurance Corporation (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for the bank. The FDIC insures deposits in 7,932 banks and savings associations in the country and promotes the safety and soundness of these institutions.
 
When a bank fails, the FDIC reimburses customers for their deposits of up to $250,000 per account. However, the outbreak of bank failures has significantly stretched the regulator’s deposit insurance fund. As of March 31, 2010, the deficit of FDIC’s deposit insurance fund was $20.7 billion.

The failed Palos Bank and Trust Company is expected to cost the federal deposit insurance fund (DIF) about $72.0 million.
 
Itasca, Illinois-based First Midwest Bank will assume all of the deposits and assets of the failed bank. First Midwest Bank will pay the FDIC a premium of 1.0% on the deposits of Palos Bank and Trust Company. Additionally, the FDIC and First Midwest Bank have agreed to share losses on $343.8 million of Palos Bank's loans and other assets.

In the first quarter of 2010, the number of banks on the FDIC's list of problem institutions grew to 775 from 702 in the fourth quarter of 2009. This is the highest since the savings and loan crisis in the early 1990s.
 
Increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC expects bank failures to cost about $60 billion over the next four years.
 
The failure of Washington Mutual in 2008 was the largest in U.S. banking history. It was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include Fifth Third Bancorp (FITB), U.S. Bancorp  (USB), Zions Bancorp (ZION), SunTrust Banks Inc. (STI), PNC Financial Services Group Inc. (PNC), BB&T Corporation (BBT) and Regions Financial Corp. (RF).

 
BB&T CORP (BBT): Free Stock Analysis Report
 
FIFTH THIRD BK (FITB): Free Stock Analysis Report
 
JPMORGAN CHASE (JPM): Free Stock Analysis Report
 
PNC FINL SVC CP (PNC): Free Stock Analysis Report
 
REGIONS FINL CP (RF): Free Stock Analysis Report
 
SUNTRUST BKS (STI): Free Stock Analysis Report
 
US BANCORP (USB): Free Stock Analysis Report
 
ZIONS BANCORP (ZION): Free Stock Analysis Report
 
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