US banks likely to fail as bad loans soar

US banks set aside a record $37.1bn to cover losses on real estate loans and other credits during the first quarter in a sign of the growing economic pain being caused by the global credit crisis, regulators said on Thursday.

Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, said it was likely loan-loss provisions and bank failures would rise in coming quarters as the fallout from market turmoil hits the real economy.

“While we may be past the worst of the turmoil in financial markets, we’re still in the early stages of the traditional credit crisis you typically see during an economic downturn,” she said, adding: “What we really need to focus on is the uncertainty surrounding the economy . . . and again it is all about housing.”

Ms Bair spoke as the FDIC released its quarterly banking profile, which showed loan-loss provisions in the first quarter were more than four times higher than last year’s level. That was the main reason bank earnings fell 46 per cent to $19.3bn from the first quarter in 2007 for the commercial banks and savings institutions where the FDIC insures customer deposits.

Following restatements by banks, the FDIC revised the industry’s net income for the fourth quarter of last year from $5.8bn to $646m – the lowest since the end of 1990.

Meanwhile, the FDIC said the number of “problem” banks rose in the first quarter from 76 to 90, with combined assets of $26.3bn. Three US banks have failed this year, compared with three for the whole of last year and none in 2005 and 2006.

Ms Bair said she expected more bank failures but emphasised that the number of problem institutions remained well below the record levels of the savings and loan crisis of the 1980s and 1990s – when one in 10 banks were in that category.

However, she said one worrying trend was the declining “coverage ratio”, which compares bank reserves with the level of loans that are 90 days past due. This ratio fell for the eighth consecutive quarter, to 89 cents in reserves for every $1 of noncurrent loans, the lowest level since the first quarter of 1993.

“This is the kind of thing that gives regulators heartburn,” said Ms Bair. “We also want them to beef up their capital cushions beyond regulatory minimums given uncertainty about the housing markets and the economy . . . It’s only prudent to be building up capital at a time like this.”

In a sign that some US banks may have underestimated the cost of the housing slump, KeyCorp this week doubled its forecast for loan losses – its second revision in as many months – sending its share price tumbling by more than 10 per cent. During the property boom, KeyCorp expanded in fast-growing regions such as southern California and Florida, where problem loans are now growing.

By Joanna Chung and Saskia Scholtes in New York
Published: May 29 2008 20:43 | Last updated: May 29 2008 20:43

Source: Financial Times

Federal regulators close Arkansas bank ANB Financial

BENTONVILLE, Ark. (AP) — Federal regulators says they’ve closed ANB Financial National Association banks after discovering “unsafe and unsound” business practices there.

David Barr, a spokesman for the Federal Deposit Insurance Corp. says many customers served by the bank’s nine locations had accounts under $100,000, which will be fully insured by the government. Barr says customers can continue to write checks and draw money from ATMs through the weekend.

Barr says Pulaski Bank and Trust Co. agreed to assume control over ANB Financial’s bank locations, which will be open Monday.

As of Jan. 31, federal regulators say ANB Financial had about $2.1 billion in assets and $1.8 billion in total deposits.

It was the third closure this year of an FDIC-insured bank. Douglass National Bank, a Missouri bank with $58.5 million in assets, was shut in January; another Missouri institution with assets of $18.7 million, Hume Bank, was shut down in March.

Both were dwarfed in size of ANB Financial, where regulators found lax lending standards, mostly for construction and development loans for projects in Utah, Idaho and Wyoming, as well as Arkansas.

Observers have been watching for signs of bank distress resulting from the mortgage crisis. Profits at federally insured U.S. banks and thrifts plunged to a 16-year low in the fourth quarter as institutions set aside a record-high amount to cover losses from sour mortgages.

The FDIC is planning to beef up its staff, including temporarily hiring up to 25 retired FDIC employees who worked in the agency’s more than 200-person division that handles failed banks. They will handle an anticipated increase in bank failures.

The Associated Press
May 9, 2008

Source: BusinessWeek

The Bush Bust of ’08: “It’s All Downhill From Here, Folks”

On January 14, 2008 the FDIC web site began posting the rules for reimbursing depositors in the event of a bank failure. The Federal Deposit Insurance Corporation (FDIC) is required to “determine the total insured amount for each depositor….as of the day of the failure” and return their money as quickly as possible. The agency is “modernizing its current business processes and procedures for determining deposit insurance coverage in the event of a failure of one of the largest insured depository institutions.” The implication is clear, the FDIC has begun the “death watch” on the many banks which are currently drowning in their own red ink. The problem for the FDIC is that it has never supervised a bank failure which exceeded 175,000 accounts. So the impending financial tsunami is likely to be a crash-course in crisis management. Today some of the larger banks have more than 50 million depositors, which will make the FDIC’s job nearly impossible. Good luck. – Mike Whitney

Read moreThe Bush Bust of ’08: “It’s All Downhill From Here, Folks”

Bank Failures? No big deal, says CNN

I really enjoyed reading this article, although I think TheOnion.com would be much better suited publisher.Here are some excerpts:

Banking experts say there is one thing that will save your money if your bank goes under. That’s FDIC insurance. “It’s the gold standard,” says banking consultant Bert Ely. “The FDIC has ample resources. It’s never been an issue,” he says.

As loan delinquencies rise, and bank failures increase, the FDIC is shoring up its reserves.

That’s fascinating, because last I checked (about five minutes ago), the FDIC had in its assets about 1.2% of the deposits it claims to “insure”.

If your bank bites the dust, there’s nothing to fear according to the FDIC. A healthier banking institution normally buys the failed bank according to Barr. “There is little or no interruption to the consumer,” he says. “If you go to bed one night as a customer of a bank, and you wake up as a customer of a new bank, there is nothing you have to do.” Your checks will still clear, you can still use your ATM card.

See? Bank failure isn’t even a bad thing!

Posted by Chris Brunner at February 29, 2008 11:16 AMSource: lewrockwell.com