Nouriel Roubini told Barron’s almost a year ago that 1,400 US banks would fail due to the collapse of the credit markets. RBC Capital made a similar estimate.
As it turns out, 2009 is only half over and only 52 banks have closed including seven that were announced yesterday. No major US financial firm has closed down.
A conspiracy theory might be that regulators are making sure that troubled banks are sold to more healthy institutions before they have to be shut down. In other words, the FDIC does not want to see a panic about the banking system so it quietly arranges marriages.
The other possibility is that small town and regional banks are better run since the S&L crisis. State regulators may also be keeping a closer eye on capital since that debacle three decades ago.
Banks may simply be slow to write-off losses on real estate loans. The rules for resetting values of these transactions are arcane. If so, the write-offs may come later in the year as auditors make the financial firms take larger reserves.
There is a chance that Roubini and RBC were just wrong and the asset bases of small banks are stronger than forecast.
Douglas A. McIntyre
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