Over night, the Federal Deposit Insurance Corporation (FDIC) shut down a further 7 United State banks bringing the total this year to 140. This number of failures is the most since 1992 during the grips of the savings and loans crisis.
Most of the banks have become a victim of the real estate crash with many mortgagees defaulting on loans they couldn’t afford and as the value of properties plummet, it makes it difficult for banks to recover the full value of the assets.
During the year, buyers have been found for many of the banks allowing them to reopen days later under the new owner. In some cases, like today, no buyer could be found for RockBridge Commercial Bank so depositors will receive cheques for the insured amounts. Depositors with accounts exceeding the $250,000 per account insured limit will become creditors of the bank and will likely get some return in the dollar once the bank has been wound up.
The FDIC is an independent agency of the U.S. Federal Government set up in 1933 after many banks collapsed during the great depression in the 1920’s and early 1930’s. The bank failures this year has cost the FDIC $30 billion dollars, plunging it into the red. It expects bank failures to grow to $100 billion over the next four years suggesting the worst of the crisis is far from over.
On top of this, $500 billion in commercial real estate loans are expected to come due over the next few years.
» Seven U.S. banks closed by regulators; failures at 140 – Market Watch, 19th December 2009