Small Banks Closed and Big Banks Get Bigger

Posted: January 26, 2011 in Banks, Failures, FDIC
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FDIC likes Fridays for closing banks …They shuttered 4 small banks last Friday. The big banks just keep getting bigger and what was passed in the Obama Administration allows for Trillion dollar banks to grow even more.

Bank Run

The FDIC insures deposits in 7,760 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank collapses, the FDIC reimburses deposits of up to $250,000 per account.

In the third quarter of 2010, the number of banks on FDIC’s list of problem institutions grew to 860 from 829 in the previous quarter and 552 in the year-ago quarter. This is the highest since the savings and loan crisis in the early 1990s.

According to FDIC chairman Sheila Bair they expect failures to fall in 2011. “You will still have elevated bank failures in 2011 but based on our current projections it will be significantly lower than what we had last year,” she said on Jan. 13.

Let me see if I understand…problem institutions are up 35.8% over last year, and bank failures will be going down.

A plausible reason might be that the FDIC insurance fund is broke, and cannot afford to absorb these bank failures. As of September 30, 2010, the fund remained in the red with a deficit of $8 billion despite adding $7.2 billion during the quarter.

The FDIC announced the following closures this past Friday:

* United Western Bank (UWB.BO), of Denver. It had assets of $2.05 billion. First Citizens Bank & Trust Company (FCNCA.O), of Raleigh, North Carolina, will assume the deposits. United Western Bank had eight branches, including in Boulder and Fort Collins.

First Citizens already had three branches in the Denver area operated by its IronStone Bank division. First Citizens has purchased assets of four other banks, in Florida, California and Washington state, in the past 18 months.

* CommunitySouth Bank and Trust, of Easley, South Carolina. Had $440.6 million in assets. CertusBank, National Association, of Easley, South Carolina, a newly-chartered bank subsidiary of Blue Ridge Holdings Inc, Charlotte, North Carolina, assumed the deposits.

* Bank of Asheville, North Carolina. It had assets of $195.1 million. First Bank, Troy, North Carolina, to assume the deposits.

* Enterprise Banking Company, of McDonough, Georgia. It had assets of $100.9 million. FDIC created Deposit Insurance National Bank of McDonough, which will remain open until Jan. 28, to allow depositors access to insured deposits and time to open accounts elsewhere.

Unofficial list of troubled banks as of 9/30/2010.

Trillion Dollar Banks Getting Bigger

The nation’s four biggest banks can grow even bigger, with the potential to add at least another trillion dollars onto their balance sheets before they even reach the limits, according to an administration study released Tuesday.

But the report, issued by the council of regulators that is supposed to keep watch for breakdowns in the financial system, calculates the formula in such a way that it leaves the largest U.S. lenders with plenty of room to grow. For example, JPMorgan Chase, the nation’s second-biggest bank by assets, can merge with U.S. Bancorp, the 10th-biggest lender, and still fall comfortably under the 10% limit. There is something wrong with this picture. What happened to TOO BIG TO FAIL?

“I said the banks won,” said Simon Johnson, a former chief economist at the International Monetary Fund who now teaches at the M.I.T. Sloan School of Management and is a Huffington Post contributing business editor. “It just tells you what the Treasury wants, and what they’re telling you is they’re going to cook it to let these banks expand.”

Guess who is in charge of the oversight committee? Treasury Secretary Timothy Geithner heads the Financial Stability Oversight Council, which produced the study and accompanying recommendations. How does this guy still have a job?

The big four banks, which collectively hold:

  • About $7.7 trillion in assets.
  • About half of the entire banking system.
  • Originate and service roughly three out of every five home mortgages.
  • Hold about 35 percent of all deposits.
  • Control about 44 percent of all credit card purchases.

Statistics provided by Timothy Geithner’s council.

Just nine years ago, it took 15 banks to control half of the assets in the nation’s banking system, according to the Federal Reserve.

The reason why JPMorgan, Citigroup and others don’t yet meet the 10 percent threshold is because of the way their liabilities are calculated.

Rather than taking their assets and deducting their capital, the formula calls for regulators to compensate for the relative riskiness of those assets, called risk-weighting. For example, because Treasuries are judged to be safe, they have a low risk-weighting. Complex financial instruments like certain derivatives, though, have a higher risk-weighting.

“When you’re in charge of writing the rules you get what you want,” said Johnson, who’s been critical of the administration’s approach to ending Too Big To Fail. “This is what Treasury wants, and they want to give the bankers everything.”

4 banks out of 7760 now control 50% of the assets in the banking system.

Maybe Thomas Jefferson had it right…

Thomas Jefferson

“If the American people ever allow private banks to control the issue of their currency, first by inflation then by deflation, the banks and the corporations will grow up around them, will deprive the people of all property until their children wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.”

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