Bank Failures: 3 So Far - Analyst Blog

Last Friday, U.S. regulators shuttered Brunswick, Georgia-based Oglethorpe Bank, taking the number of banks failing thus far in 2011 to 3. This follows 157 bank failures in 2010, 140 in 2009 and 25 in 2008.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks continue to struggle. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to cast a shadow on such institutions.

With the industry absorbing bad loans offered during the credit explosion, the banking system is exposed to some severe problems. This is increasing the risk of bank failures even further.

Oglethorpe Bank had total assets of about $230.6 million and total deposits of about $212.7 million as of September 30, 2010.

This failure represents another blow to the Federal Deposit Insurance Corporation (FDIC) fund meant for protecting customer accounts, as it has been appointed receiver for these banks.

The FDIC insures deposits in 7,760 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank collapses, the FDIC reimburses deposits of up to $250,000 per account.

Though the FDIC has managed to shore up its deposit insurance fund during the last few quarters, the outbreak of bank failures has tested its limits. As of September 30, 2010, the fund remained in the red with a deficit of $8 billion despite adding $7.2 billion during the quarter.

The failure of Oglethorpe Bank is expected to cost the FDIC about $80.4 million.

Little Rock, Arkansas-based Bank of the Ozarks has agreed to assume the  assets and deposits of Oglethorpe Bank. The FDIC and Bank of the Ozarks have agreed to share losses on $173.9 million of Oglethorpe Bank's assets.

In the third quarter of 2010, the number of banks on FDIC's list of problem institutions grew to 860 from 829 in the previous quarter and 552 in the year-ago quarter. This is the highest since the savings and loan crisis in the early 1990s.

Increasing loan losses on commercial real estate are expected to lead to hundreds of bank failures in the next few years. The FDIC expects bank failures to cost about $52 billion over the next three years.

The failure of Washington Mutual in 2008 was the largest in the U.S. banking history. It was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).

 
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