Well now, this is something I know quite a bit about having worked in a banking related industry my entire career. I sold technology and related services to banks. Sold, being the operative word as I have been unemployed for 11 months because banks in general are really taking a hit and are not spending money on tech.
Early on it was the mortgage bubble that burst that drew the big players in (Washington Mutual and IndyMac). The real estate market tanked and that effected regional banks that had an over abundance of real estate development loans (usually not in their market area). Now, the general recession is rocking main street and commercial lending is in trouble. Ma and pa businesses are shutting down, defaulting on commercial loans and the community bankers are really feeling that one. The number of banks nationwide that are on the FDIC's
troubled list is 552 as of Nov. This is up from 416 just last last summer! The list is never made public. I'm sure the number will continue to grow. There's no reason to think they are shrinking. So this is going to take some time to work through. My guess is two to three years, probably closer to three. And that's based on recovery. If the economy continues to falter and sputter, it will only get worse. None of the bank failures cost taxpayers anything. Banks are charged an insurance premium based on the size of their deposits. Since there were so many failures last year and many more predicted, the FDIC required each bank to prepay for the next three years. The fund is now replenished but I strongly doubt that will be enough. I hope so, though.
The FDIC only closes banks on Friday. They can only close 6 at any one time as they only have 6 closing teams. This is up from 4. The actual number of banks might exceed 6 but that is because a group of commonly owned banks were closed. In advance of the closing the FDIC will contact other institutions that have identified themselves as acquirers (obviously on sound financial footing) and will take bids from them for the purchase of the remaining bank. The acquiring bank will buy the property, the deposit accounts and possibly some of the loans. The FDIC usually retains the bad loans. Everything is set up to b consummated on a Friday afternoon giving them time over the weekend to work with vendors and other parties to pull off the change. Its not as simple as changing signage. There are huge technical issues that much be dealt with. But it generally goes fairly smooth as everyone except the failed bank has had time to prepare.
I have a friend at the FDIC who told me last month that the FDIC is presently managing $13 billion is loans from failed institutions. That's a bunch. With the closings they anticipate in 2010 they expect that number to triple!!!! Amazing. Makes me think there are some very big trees yet to fall. I have heard there are banks that have technically failed but are still in operation as the FDIC can only close 6 each week. The FDIC is now selling the loans it is managing. In January it sold a $1 billion package. These are probably sold at a discount. I understand some private equity funds are being set up for this purpose. The vast percentage of these loans are performing. Someone will make money on this. Possibly a lot of money, especially if the economy doesn't get worse.
No one needs to be concerned if you have accounts at a failed bank. Your deposits are insured up the the FDIC limit, presently $250,000. And if you have a loan there, you still have to make your payments. But if you have invested (own stock) in a bank that fails, you lose. You will receive nothing for your investment.
For more information check here
FDIC
For a historical list of failed banks and related information check
here