Another question for ya!
Sheila Bair has been quoted as saying that bank failures will peak in 2010. Do you agree with her?
The above link from the reader is from April 2010, and Sheila's list of problem banks has increased since then and bank balance sheets have eroded. It would be interesting to hear if she still feels this way.
The reader is jumping the gun on one of my five predictions for 2011. We closed 140 banks in 2009 and we are on pace to close 160-180 banks in 2010. We have 829 banks on the FDIC's problem bank list. Those banks made the list on data from the past. The list doesn't include those banks just under the radar who will have new bad loans in the future pushing them onto the list soon. So, I do think we will close more banks in 2011 based on the pipeline of bad banks.
If there are three reasons it won't happen, they are the following:
FDIC Human Resources: Does the FDIC have the human capital to close banks at a faster rate? It seems like they have tapped our their human resources to increase the rate of closures. In 2009 they averaged 11-12 per month and in 2010 it has ticked up to 14ish per month.
Based on the 829 in the FDIC's problem list, we should be closing at least 20-25 per month or more to discharge the issue. I would love to her Sheila Bair answer this question in her usually direct manner: Does she have the human resources?
Political Reasons: Maybe the FDIC is under orders to bring about closures slowly as to not create the view of a more significant problem and soften the perception of industry issues. It wouldn't surprise me one bit given the spinning of facts Uncle Sam does all the time, but there's no way to prove it.
Bank Buyouts/Mergers: There's a new trend coming to life. There are many healthy banks making offers to buy poorly operating banks prior to FDIC closure. And for good reasons. The selling bank reduces some liabilities on executives and directors by selling versus the FDIC closing them down.
In banking, there is NOTHING in the way of organic growth, so to grow your franchise is must come from acquisition. As long as the buying bank discounts the bad loans into the purchase price, it's a great opportunity for the buying bank to increase their foot print and create greater efficiencies.
Mergers like this reduce the number of bank's on the FDIC's list, but it would take a lot of mergers to reduce that list substantially from 829.
The reader asks a great question, and that's my take on it from the Banker's chair.
Hope all is well.
J.D. Rosendahl, Rosey