The Year of Bank Failures: Numbers 14 and 15

Last week the fourteenth and fifteenth U.S. bank failures this year occurred, and the list is likely to grow even longer by the end of the year. The 15 failed banks this year represent more failures than the previous five years combined.

“One thing we must recognize: even with the new Treasury authorities, some financial institutions will fail,” Secretary of the Treasury, Henry Paulson told reporters last week. He was referring to the $700 billion bailout package that was designed to ease the fears of investors and unfreeze the credit market. However, even with the bailout in place, Wall Street had a tumultuous five days of trading last week.

The latest victims of the financial crisis are Main Street Bank of Northville, Mich. and Meridian Bank of Eldred, Ill. Main Street had $98 million in assets and $86 million in deposits. Meridian had $39.2 million in assets and $36.9 million in deposits.

Now, the Federal Deposit Insurance Corporation will be obligated to cover any losses of depositors up to $250,000. The maximum amount covered was raised just last week to prevent more bank failures. It is estimated that the two most recent failures could cost the FDIC up to $53.5 billion. The FDIC fund is currently at a five year low.

On June 30, the FDIC released its most recent report on banks in trouble. That list included 117 banks representing $78 billion. Two names noticeably absent from that list exemplify the precarious nature of the banking industry in the current economic climate: Washington Mutual and Wachovia. Both banks failed in the last month - WaMu being the largest bank failure in the nation’s history - after it avoided being categorized as in trouble.

An increasing number of bank failures could spell even greater problems for a credit market that is already at a standstill due to the decreasing amount of lenders in the system.

Paulson has proposed a plan that would allow him to inject capital into banking institutions by purchasing equity stakes in the companies, in hopes of keeping them solvent.

“We are a strong and wealthy nation, with the resources to address the needs we face,” Paulson said, attempting to sound optimistic in the face of mounting bad news.