Not to be a dark cloud about our ”recovery” (though those who know me expect nothing less) but there are some serious issues yet to be dealt with in the banking system. These “aftershocks” are going to be felt, the question is how bad will the damage be?
In 2009, the FDIC sustained losses of over $36 billion due to the failure of 140 banks. For comparison, the FDIC incurred losses of $29.6 billion from 1987 to 1992, when 1,049 banks failed during our previous financial downturn ( the infamous S & L crisis). Much has been said about that crisis being worse than the current one due to the number of failed institutions. However, the problem this go around is not the number of banking institutions failing, but the value of them.
In 1989, 534 bankes failed, with the average value of total assets at each institution hovering around $205 million. In 2009, the average total asset value of each failed institution was closer to $1.2 billion. A nearly tenfold increase. Also of note, the cost to the FDIC during the Savings and Loan crisis was $28 million per failed bank, whereas that number escalates to $261 million per failed bank in 2009. 2010 does not look better.
Meridian Group (an industry tracker out of Seattle) suggests that it is difficult to predict the cost of looming bank failures, but given the rate at which the FDIC continues to add staff, it is safe to reasonably expect the worse is yet to come. The good news is most really large U.S. banks are not heavily exposed. Highly delinquent commercial mortgages were only 0.1% of Citigroups assets and it is believed Bank of America’s exposure is only slighly higher. Alas, it appears it’s small to medium-sized banks at highest risk of exposure, futher complicating the ability for local communities to improve. Banks with less than $1 billion of assets had, on average, 32.5% of their assets in commercial mortgages.
While some experts feel the early-stage delinquency rate on commercial mortgages peaked in first quarter of 2009, others are not so sure. They believe the commercial mortgage crisis may peak this year and begin improving in 2011. But with numerous loan maturity dates set for 2011-12, the dark cloud in me says to remain cautiously optimistic on that idea too.
When was this published? I’ve been seeking around for months for this info. Nice article!!