Given last week’s announcement that IndyMac Bank was taken into FDIC receivership, I thought it would be interesting to take a look at the recent history of bank failures. Lo and behold, the FDIC has an entire page dedicated to this very topic. What follows is a graph of the number of bank failures by year since 2001.
As you can see, there was a spike during the bursting of the stock market bubble back in 2002, and it appears that things may once again be on the upswing. Note that 2008 numbers are based on year-to-date data. Assuming that things continue at the same pace, the total will climb into the neighborhood of nine failed banks. While this falls short of the 2002 numbers, it’s still pretty significant.
If you’re nervous, the best advice I can offer is to observe FDIC insurance limits ($100k per individual per institution). While you can’t control what happens in the banking industry, you can protect yourself. You might also want to check out my earlier rundown of the safest online banks, though the landscape is changing fast.
Question? What happened to the mortgage (house)I have with a bank that is going to belly-up? And also equity loans I have with the bank for that matter.
The world financial problem has been precipitated by the over leaveraging of Hedge funds and thier buying of packaged deals with investment banks and mortgage institutions. The problem wont be fixed until the world sets limits on the leaverage that these groups can use for investments in addition to more strict requirements on the initiators of loans.
The S&L crisis of the 80’s started out slow and then gained momentum over the course of 7 years, eventually costing the taxpayers to the tune 1.7 trillion dollars.
You would think that now the banks are trying to strengthen their balance sheets, and gather assets. Of course you would have thought the same thing of the approximately 750 banks that failed in the 80’s.
But since in truth the banks make imaginary money based on trust that the bank is solvent, once the appearance that the peoples trust is gone, no one will buy them out.
Our banking system is a confidence game, they loan out ten times more money than they have, if they lose the trust of the depositors, who then decide that they want their money back, the bank collapses. Leaving this big vortex of magic debt that has to be taken care of.
Who gets stuck with the bill? Good ole you and me, The Taxpayer by way of the politicians granting money to bail them out.
Recent bank failures are down to greed, they were too eager to offer mortgages at high income multiples and loan to value ratios.
Banks are now more cautious and strengthening their balance sheets has become top priority and so the number of failures should decline.
The smaller, weaker banks will be taken over by their larger rivals rather than be allowed to go under.
Definitely don’t put more than 100k(200k for joint account) at a bank to be safe. I mean who would have thought Indymac was going to be taken over by the government? Apparently not a lot of the people who kept their money in there that were over the FDIC insurance limit.
– James
http://www.bankaround.com
Just because a bank loans out $100.00 does not mean they have $100.00 in the safe or in liquid assets. Its more like $10.00 on the banks books in some form for every $100.00 loaned out.
So for all your money they are paying you 1, 2, maybe 3% interest on, they are turning around and charging 5 to 20% interest ten times over. Pretty slick deal for the banks, until the market turns against them and suddenly “poof” everybody’s money disappears.
Remember when looking at this graph that bigger banks often absorb smaller banks. A larger bank can weather through losses. I suspect we have fewer small banks now than in 2002, so even if we don’t reach 12 bank failures in 1 year, it doesn’t mean that we are doing better off now.
It would be interesting to see a graph indicating bank mergers overlaid on this one 🙂
If I’m not mistaken the limit on a joint account is $200k for FDIC insurance. This is per institution. I can’t imagine why anyone – even super rich – would have more than that in one bank. Even if I felt the need to have $1M in cash on hand that’s just 5 banks with joint accounts.
It is unfortunate that it cames to this for some lending institutions. However, lending is like any other business and requires strict controls, check and balances.
When banks start lending money like “cowboys” and forget the controls and lending criteria that have built and preserved their business for years then we are bound to have failures.
Of course, the American “consumerist” society is certainly to blame as well. Apparently there is no such thing as living within your means any longer. The phrase “delayed gratification” no longer has a definition in our society.