Where are the bank failures?
Sep 01, 2008

If you read the common Internet buzz concerning the current financial crisis you would get the impression that this is the worst crisis ever to hit the economy. Yet, on Friday the FDIC announced only the 10th bank failure for 2008. With over 8,000 banking institutions in the U.S., 10 failures seem a long ways away from a crisis. I decided to take a closer look at some of the data to see how “big” the banking crisis has become. Here are a few points I find of interest:

• The 10 banks taken over by the FDIC had just under $40 billion of assets in total.
• The total assets of the 10 largest banks in the U.S. is a combined $6trillion.
• Total assets of all 8,451 FDIC insured institutions is $13.3 trillion.
• Percentage of failed assets, year to date, of total: 0.3%. Or written as a decimal: 0.003 of all banking assets were in failed banks so far this year.

In comparison, during the Savings and Loan debacle of the 1980’s and early 1990’s there were over 1,000 federally insured S&L’s disolved. The Resolution Trust Corp. took down 747 institutions over 6 years, or a rate of 125 per year. The current situation is showing no signs of getting anywhere near those levels.

The current situation has most banks taking severe write downs on any asset that has any chance of being impaired. If these assets under-perform less than anticipated, many banks could be recouping the write downs as outsized profits in the next few years.

I know many believe we are just at the beginning of a major financial crisis in the U.S. I see a financial system where home prices peaked almost 3 years ago and the mortgage meltdown started in earnest over a year ago and we still have only 10 bank failures and less than 1/3 of 1% of banking assets taken over by the feds. I do not see failures accelerating this late in the game as the economy starts to recover and the housing market is showing signs of a pending bottom.