Total Bank Failures for 2011
It might be a good news for 2012 when it comes to banking. The number of bank failures 2011 is not as bad as the past years. A total of 92 banks failed in 2011, a far cry from 157 banks in 2010 and 140 in 2009.
Bank failures 2011 are mostly made of small community banks with assets below $1 billion – the lowest with $37.6 million. Only 7 banks with assets above $1 billion – the largest with $3 billion made the list as compared to 2010 where 23 banks with more than $1 billion worth of assets failed. The numbers show progress.
The economy may improve when the number of bank failures declines continuously. This will cause increased interest rates and decreased premiums banks have to pay to Federal Deposit Insurance Corporation for insurance. Also, banking industry may regain the consumer confidence resulting in increased deposits and investments.
Understanding what causes bank failures is one of the answers for improvement.
Banks fail when they lent money to customers who did not or cannot pay back. Customers include individuals, companies, institutions and nations. Unpaid loans turn to non-performing assets or bad debt. If bad debt accumulates, banks would lose its resources to meet their financial obligations such as paying the bills and providing cash to its depositors.
Banks also fail when its assets’ market value becomes lower than its liabilities’ or its capital ratios become below the minimum.
Bank failures also happen due to its homogenous investment strategy. Almost all banks invest in the same type of assets. If such assets fail, so do the banks. Exposure to European financial crisis may also lead to failures. Banks holding a lot of Greek, Italian and Portuguese debt that may have a difficulty paying back are at risk.
Bank failures cause economic instability. It leads to loss of public confidence, jobs and credit availability that may paralyze businesses, especially the small ones. It also prompts FDIC to increase its insurance premium resulting in banks lowering its interest rates.
Yet, worry not. The result of banks failures 2011 is an improvement from the past. It also indicates that leaders and bank executives have learned their lessons. If this continues, 2012 would be a good year for the economy.
Now, there is a move to keep banks from failing. Recently, the US President Barrack Obama signed a bill ordering the Government Accountability Office and FDIC Inspector General to study the effects of bank failures. It also urges them to study the economic conditions of the states with more than 10 failures since 2008. 11 states, led by Georgia with 71 failures since 2008 and also the topnotcher in 2011 with 23 failures, made the list.
The bill also urges the evaluation of loss-sharing agreements between receiver banks and FDIC, loan models – if they can modify it without the LSA and methods field examiners use to determine losses and bank capitals.