Bank Failures Accelerate, FDIC Sweats

Bank closings hit eight last week bringing the total to 48 for the year. The rate of the failures is greater than in the previous two years. FDIC chief Sheila C. Bair recently said that she expected bank shutterings to peak in 2010.

Some of the closures could have been foreseen and perhaps avoided according to the U.S. Treasury Department’s inspector general Eric Thorson. Testifying before Congress last week, he said “We have found that time and again, the regulators for which we have oversight, the Office of Thrift Supervision (OTS) and the Office of Comptroller of the Currency (OCC), frequently identified the early warning signs…that could have at least minimized, if not prevented, the losses associated with the financial institutions’ failure but did not take sufficient corrective action soon enough to do so,” according to Reuters.

The FDIC still may not have enough money to cover the failures.  This is despite the fact that it has already required the institutions that it insures to pay their dues through 2012 when the agency ran low on money in September 2009. The only recourse the FDIC had otherwise was to go to the Treasury Department for money. The prepayments brought the FDIC $45 billion. Now, however, the pace of failures is on a much steeper curve than it was last year.

After the $45 billion came in Bair said that the total cost to fund failed banks could rise to $100 billion between 2009 and 2013. The FDIC cannot go to its member banks to get them to prepay fees again, and that means the taxpayer is the only source of funds to handle the costs of shuttering  these financial firms. Treasury Secretary Tim Geithner recently said that the government will only lose $89 billion on the TARP much below the $356 billion Congress estimated just a year ago.

Geithner spoke too soon. The banking crisis is not over at all. The problem has just moved from megabanks to smaller institutions.

Douglas A. McIntyre