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Bank Failures Rise but Critics Say Not Fast Enough
A Carson City sheriff's detective locked up First National Bank of Nevada in July. Regulators closed it while it still had sufficient capital reserves.
(By Brad Horn -- Nevada Appeal Via Associated Press)
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The names of the banks on the federal list are not disclosed for fear that people will withdraw money and push the institutions even closer to the brink. Most depositors have little reason to withdraw funds because the government guarantees the repayment of at least the first $100,000. In most cases, the failed bank is closed at the end of business Friday and reopened Monday morning under new ownership and management.
About 38 percent of deposits are not insured by the government because they exceed the maximum; those deposits are sometimes repaid, at least in part, but can be lost completely. People who invested in the bank's stock generally lose every penny. Employees often lose jobs. Communities lose a local lender, though the arrival of a healthier bank can be an improvement.
The Washington area so far has been unscathed by the failures. Analysts say few local banks and credit unions appear to be in serious danger of failing, in part because the local economy has remained relatively strong. "What we're dealing with locally is just low profits," said David Danielson, president of Danielson Capital, a small-bank consulting firm in Vienna. "While the banks are suffering, they're well capitalized, and we wouldn't expect to see failures here."
In Virginia, a bank in Danville and a thrift in Martinsville appear on lists generated by financial analysts of troubled institutions, and the Martinsville thrift, Imperial Savings and Loan, has been ordered by the Office of Thrift Supervision to sell itself to a more stable institution.
The failures so far this year will drain the FDIC's insurance fund by an estimated $9.2 billion. Losses for the year could approach the inflation-adjusted record of $12.8 billion set in 1988.
The expected losses so far would cut 17 percent from the fund's total balance, which was at a record high of $52.8 billion at the end of the first quarter. That could drop the fund below a threshold requirement that it contain an amount equaling at least 1.15 percent of all U.S. insured deposits.
While the law gives the FDIC five years to return the fund to that level, officials have indicated they will act as early as this fall in the belief that more losses lie ahead.
