Listings of bank foreclosures continue to grow as the number of collapsing small banks continue to rise. According to the Federal Deposit Insurance Corporation, it has just shuttered the 100th failed bank in the last year. While the country’s largest banks were rescued by billions in taxpayer money, failing small banks were closed and their deposits and other assets were transferred to other banks.
According to bank analysts, the number of failed small banks is still considerably low compared to the overall number of smaller banks throughout the U.S., but the bank closures show the divide between smaller banks and the country’s biggest banks like U.S. Bancorp, JPMorgan Chase and Goldman Sachs, which are growing stronger and bigger. Analysts cite the high number of bad real property loans as the major factor for the failure of most, if not all, of the 100 banks that have failed so far this year. They expect more small banks to fail and to release more listings of banks foreclosures into the market because of these toxic real estate loans.
The rising number of bank failures has wiped out billions from the FDIC, which has been paying the depositors of failed banks. FDIC said that its over $50-billion fund as of 2007 is now below the safe level. To replenish its fund, it has asked stronger banks to make their insurance payments earlier.
Communities served by small banks are also now feeling the adverse effects of the failure of their banks. Although their deposits are paid by FDIC and their other assets are transferred to the acquiring institutions, they have lost their strong relationships with their bankers and they are now facing new bankers bent on cutting costs and eliminating previous incentives. Some acquiring banks have closed branches, terminated high-interest deposit accounts, cut off several lines of credit and ended loan programs with favorable terms.
FDIC Chairwoman Sheila Bair explained that bank closures are painful to communities, but failing banks needed to be shuttered early so assets can be preserved, consumers can be protected and financial stability is sustained.
The FDIC expects more bank failures over the coming years, particularly in the Southeast and Midwest where banks made big loans to house builders and developers of strip malls, housing subdivisions and office buildings.
According to Foresight Analytics, around $870 billion of the $1.8 trillion worth of commercial property loans in the U.S. were provided by smaller banks that lack the trading strength of bigger banks, putting them closer to failure and their assets to listings of bank foreclosures.