Bank Failures Off To a Brisk Start in 2010

Those who were expecting a slowdown in bank failures this year are probably going to be disappointed, as a total of 15 banks have already failed so far in 2010.

140 banks collapsed in 2009, making for the worst year for bank failures since 1992 (181).

With the "Great Recession" technically coming to an end in the United States, many people were hoping that the number of bank failures in the United States would start to level off and begin to decline.

If the first month of 2010 is any indication, we may need to wait until next year before we see any sort of meaningful pullback in the number of failed banks in the United States.

This week, a total of six banks were shut down by regulators. They were:

-First National Bank of Georgia, Carrollton, Georgia
-Florida Community Bank of Immokalee, Florida
-Marshall Bank, National Association of Hallock, Minnesota
-Community Bank and Trust of Cornelia, Georgia
-First Regional Bank of Los Angeles, California
-American Marine Bank of Bainbridge, Washington

The FDIC (Federal Deposit Insurance Corporation) has been severely taxed since the start of the "Great Recession", as they are the agency in charge of protecting the deposits of American citizens.

The spike in bank failures since the start of the "Great Recession" has caused the FDIC deposit insurance fund to be drawn down at an alarming rate, which has forced to agency to raise more funds to replenish the insurance fund.

In order to replenish these funds, the FDIC recently announced that banks would have to prepay three years worth of premiums to the FDIC. Banks normally pay quarterly premiums to the FDIC, based on the amount of deposits that they currently have. This is how the FDIC raises money and remains in operation.

By going this route, the FDIC was unable to avoid less savory options of borrowing money from the Treasury Department or borrowing money directly from banks.

With the problem bank list currently sporting 552 names, you can safely assume that there will continue to be a rash of bank failures throughout 2010.

The $64,000 question right now is - when will the hurricane of bank failures start to slow?

Filed under: The Economic Meltdown