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Banking Crisis Worsens: Two Banks in One Week

Published 09/02/08 Craig Harrington - Print Article
E-mail - editor@economyincisis.org

The FDIC has a growing problem on its hands, as two more U.S. banks were forced to close under the weight of millions in bad debt. More banks have failed in 2008 than in the previous five years combined. Bank closings are still very rare, but we have seen ten banks close in just eight months thus far in 2008, with eight of those ten coming in the past three months.

The latest victim of the combined credit crisis and housing slump was Integrity Bank based in Alpharetta, Georgia, which was closed on August 29, 2008. Integrity Bank held $1.1 billion in total assets and $974 million deposits at the time of its closing. The bank will be operated by the FDIC, and Regions Bank of Birmingham, Alabama has agreed to assume all of Integrity Bank’s deposits for a fee of 1.012 percent to the FDIC. Regions has also agreed to purchase $34.4 million of the Integrity’s $1.1 billion in assets, the rest will be held by the FDIC, according to an FDIC press release.

The loss of Integrity Bank comes just one week after the closure of Columbian Bank and Trust of Topeka, Kansas and should act as a reminder to all Americans that they must take the necessary steps to guarantee their deposits. The FDIC maintains that because a healthy buyer was available, all customers will be able to continue banking on September 2, as the five former branches of Integrity will reopen via Regions Bank, according to Bloomberg.

The United States is witnessing its highest rate of banking failures in 14 years, as the industry struggles to survive in the wake of $505 billion in credit losses and writedowns since 2007. There are still over 8,400 banks operating within the United States, and only 117 of those are on the FDIC’s list of problem banks (the names of these banks are kept guarded to alleviate consumer panic), but the loss of ten banks in eight months should be a real concern for all Americans.

Furthermore, the FDIC expects to spend up to $300 million of the $45.2 billion remaining in its dwindling reserve fund on Integrity’s insured deposit holders. The fund held $53 billion at the beginning of last quarter but has lost a significant amount of its value in the past three months. Not all of the nearly $8 billion in FDIC losses are derived from payouts to insured accounts. The majority were most likely lost to poor investing by the FDIC.

The health of our banking system is an accurate benchmark for the economy as a whole. While the system is still operational, it is hardly optimal. Americans need to take what steps they can to protect their money in the event of a failure of their bank of choice.

Source Bloomberg:

Integrity Bank of Alpharetta, Georgia, was closed by U.S. regulators today, the 10th bank to collapse this year amid a surge in soured real-estate loans stemming from the worst housing slump since the Great Depression.

…

Banks are being closed at the fastest pace in 14 years as financial companies report more than $505 billion in writedowns and credit losses since 2007. California lender IndyMac Bancorp Inc., which had $32 billion in assets, was closed July 11 in the third-largest bank seizure, contributing to a 14 percent drop in the U.S. deposit insurance fund that had $45.2 billion at the end of the in the second quarter.

…

Before today's action, the FDIC had closed 36 banks since October 2000, according to a list at fdic.gov. The U.S. shut 11 banks in 2002, the highest in the period. In 1994 the government had closed a dozen institutions by the end of August.

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