Little Banks Fed to the Sharks, the Big Boys Still Lumbering Along
Let this serve as a lesson to the community bankers of future generations that are still toddling around in their Pampers: do not get tangled in the exotic garbage of Wall Street without knowing the consequences of your actions.
They'll write books about this stuff that will end up as curriculum for future CFOs, controllers, finance professionals, and CPAs and hopefully our lesson will serve to keep the kids out of trouble when they are the ones behind the mahogany desks of America. Until then? Keep dreaming, we've got a lot more hurting to do before we can rightfully start penning the "Lessons Learned from the Financial Crisis" bestseller.
Among the 77 banks closed so far this year [we're actually at 80 now as of 3:39pm PDT] -- compared with 25 last year and three in all of 2007 -- were a stream of smaller institutions, many felled by losses on ordinary loans amid the souring economy, tumbling home prices and spiking unemployment. Their business was a far cry from the complex securities favored by Wall Street investment banks that precipitated the financial meltdown.
The average cost to the fund of a bank failure over the past 19 months has run higher than during the savings-and-loan debacle. That's partly due to smaller banks having higher resolution costs than larger ones, and because the steep decline in home prices that set off the current distress wasn't a factor in the earlier crisis, said Jim Wigand, deputy director of resolutions and receiverships at the FDIC.
Because of the tumble in prices, the loss rates on home loans and construction and development loans were higher for banks, with "a domino effect" on related securities, Wigand said.
Many of the smaller banks that failed in the recent run shared common attributes: rapid growth, heavy concentration of brokered deposits sold by securities firms to customers outside the bank's local area, and heavy lending in "hot markets" like Arizona, California, Florida and Nevada, noted Bert Ely, a banking consultant based in Alexandria, Va.
They are spread nationwide, though there is a concentration of banks in Georgia: 15 have fallen there since the beginning of last year, more than in any other state. That is a reflection of the local real estate market, whose distress has rippled throughout the economy there.
Georgia keeps getting pounded week after week and though the FDIC is all dried up, the failures are still piling up.
I hope we have a plan! (LOLZ. I know better.)