Five US local banks in Georgia, Minnesota and California were closed Friday by regulators, the largest daily number of failures for over a decade, bringing the total number of failed banks this year to 45.
The failures were all small and of no systemic threat, but they emphasised the continuing weakness in the US banking system, one that is being ignored in New York.
The collapsed as analysts started looking at the performance of bigger Wall Street banks in the second quarter and were finding that they have had another big month in trading and capital markets activities, but face more losses on debts (including their own), credit cards and corporate loans going bad.
This has seen banks like Goldman Sachs raise capita and repay Government money to set themselves ‘free’.l
Four of the banks were shut; the fifth was sold to a competitor. The cost to the Federal Deposit Insurance Corporation FDIC) will be just over $US1 billion.
Friday night also saw the Spanish Government reveal a 90 billion euro ($A157 billion) bailout plan; that came a week after Moody’s downgraded or put on credit watch negative 30 banks and financial groups, including the country’s big two, Santander and BBVA.
Russia started talking about a $US100 billion (around $A120 billion) bailout of its biggest banks, the European Central Bank contributed a record 442 billion euros to the eurozone banking system to keep it flush with money and the Bank of England warned that financial groups remain vulnerable to another shock, despite the improvement in conditions in the markets.
In Japan Citigroup was banned from engaging in retail baking activities for a month over poor record and account keeping, which contravened an order from the country’s regulators four years ago.
And the troubled Swiss giant, UBS, warned of a second quarter loss and raised another $A4 billion in fresh capital to meet the impact of that second quarter red ink.
All these developments underline that the risks to the financial system and the stuttering emergence of better economic signals, remains hostage to the health of banks, large and small.
The latest failures were: The Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles were closed yesterday by state regulators, according to statements from the Federal Deposit Insurance Corp.
Statements posted on the website of the Federal Deposit Insurance Corporation listed the failures.
The collapses follow three the previous Friday.
The 45 failures for the first half of 2009 are 11 times more than the number for the first half of 2008.
In 2008, 25 U.S. banks were seized by officials, up from only 3 in 2007.
In fact in the year to this month, 66 US banks have failed, including the largest failure in US history, Washington Mutual.
The financial crisis has taken a heavy toll on small banks across the nation as losses in the housing market mount and unemployment dents household wealth. Analysts expect the trend to continue even as larger banks stabilize and the overall economy begins to recover.
So far this year, nine banks in Georgia have failed and California has had five banks fail.
The cost of the 45 failures so far this year is $US11.89 billion. That compares with $US17.6 billion in all of 2008.
But it’s clear that while banks remain fragile, there’s little if any political will to crack down hard on them.
They are making money on Wall Street (Or so the market assumes), but in the heartland of the US, banks are dying at a rate of more than two a week, and yet that no longer worries the stockmarket.
In the UK, The Bank of England has warned that financial institutions’ losses from the crisis have left them vulnerable to another wave of shocks, including the risk that the economy will stay mired in recession.
“Given their leverage and funding positions, banks in the United Kingdom and internationally will remain sensitive to further shocks for some time,” the central bank said in its Stability Report.
“If economic recovery were to stall as a result of weak bank lending, losses on assets could rise, further affecting confidence in the banking sector.”
The bank’s biannual financial stability risk assessment follows Governor Mervyn King’s comments last week that banking problems could make the economy’s escape from recession a “long, hard, slog."
The report also makes suggestions on regulation changes including greater capital buffers for institutions days before the US Treasury unveils its own proposals for a revamp this week.
“Banks’ balance sheets remain sensitive to any setbacks in recovery in financial markets or real activity,” the bank said. “The economic downturn is still perceived by market participants as the highest risk to financial stability.”
The Treasury, the B of E and the Financial Services Authority are engaged in a turf war for control of the banking system that the previous Blair Government (With current PM, Gordon brown as Chancellor of the Exchequer, driving it) split up.
That split looks like being maintained and the FSA and the Treasury will be allowed to oversee the banks, (which means the same two groups that ignored and poorly regulated the banks, allowing them to explode the financial system and the economy) will remain in control.
The Brown Government is determined to maintain political control over the ba
