Why Bank Failures Still Matter

It was brought to my attention today that my friend The Reformed Broker thinks we shouldn't give a rat's ass about failed banks and can stop counting now. I have been counting over at Bank Fail Friday since July of 2009 but am not offended. We've been counting on Twitter since December of 2008. So?

TRB via Forbes:

Every Friday night, I see a bunch of articles and blog posts come out documenting the latest one or two banks to go down for the final dirt nap. I think these articles are superfluous at this point as the pace of failed banks just isn't all that remarkable.

A peculiar feature of the massive credit bust is actually how few banks have gone under, especially when compared with annual bank failures of past decades. This is not peculiar in that we cannot explain it (bailouts, massive banks have already gone under or have been merged to protect the system, the night is still young, etc).

We've had about 82 banks go down so far in 2010, and it's June, the halfway mark. Assuming this means something a bit north of 160 for the year, the number really just isn't that high.

Maybe he's not specifically talking about me since I don't know if I've ever actually "obsessed" over failed banks and sometimes have other shit to do on Friday nights than tally failed banks. But there are relevant reasons to pay attention to bank failures, mainly because the FDIC is operating in the red and that affects our growing deficit and... well... I don't have to explain my position on economics to TRB, he gets it.

Cause and effect. Do I care that crap community bank in Georgia failed because it had a sick portfolio full of loans it should have never had in the first place? Not really. But in the aggregate, what happens mostly every Friday is relevant. Not obsession-worthy.

The Treasury Department's financial bailout has a growing problem on its hands, and this time, it has nothing to do with Wall Street.

A new report from the agency shows that community banks continue to plague the program. A total of 101 bailed-out banks -- nearly all are small -- have missed paying the government a dividend, which was a condition of taking the aid. That number is up 25 percent since February and has nearly doubled since November.

The rising number of "deadbeat" banks, as they are known, could force Treasury to become more deeply entangled in the affairs of small financial firms that are troubled. The bailout legislation gives Treasury the right to appoint members to the boards of banks that miss six dividend payments.

So far only one firm, Saigon National Bank in Southern California, has missed that many payments. Eight others have missed five payments and 16 have missed four. Most banks that received federal aid agreed to pay the government a 5 percent dividend every three months upon taking funds from the Troubled Assets Relief Program.

Shit, since the US government is the worst loan sharking operation in history (if you don't pay us back, we'll be forced to GIVE YOU MORE MONEY!!), they might just let this one go. But someone has to keep absorbing these failed banks.

I don't care if you count them.

Anyway, the point is that it's all related. Ask Timmy.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


W.C. Varones said...

Not to mention the FDIC, which finds out that about a third of every bank's balance sheet is complete BS every time it steps in to close one.

Heckuva job, Sheila!