US banks continue to fail

The mortgage crisis of US banks continue to take toll of the banks with six more casualties in the last week. The expert's opinion project deeper crisis in the next year.

THE CASUALITY of US banks continued in slump. Addition of six new banks in the list of closed one took the total to 130 in the current year. The list of the casualties included the AmTrust Bank of Cleveland, Ohio, fourth largest bank to close. The six failures are expected to cost the Federal Deposit Insurance Corp’s (FDIC) insurance fund a total of more than $2.3 billion.

Last week, the US economy showed some signs of brightening as the report showed far less job cuts since the recession began. The FDCI, which protects bank accounts, has said the banking industry's recovery will lag behind the general economy. Hence, the small banks are expected to continue to fail at an elevated pace through next year. Banks are collapsing at the highest annual level since 1992. In 2007 just three banks collapsed, last year it rose to 25. This year is a record high.

The AM Trust Bank had assets of $12 billion and deposits of $8 billion. The New York Community Bank of Westbury, New York, assumed its deposits. The regulators closed three banks in Georgia, bringing the number of bank failures in that state this year to 24. Benchmark Bank was the 20th to fail in Illinois. California and Florida are other most affected states.

The other five banks - Benchmark Bank of Illinois, Greater Atlantic Bank of Virginia and the three banks in Georgia — Tattnall Bank, Buckhead Community Bank, and First Security National Bank had assets of less than $1 billion.

When the crisis began in December 2007, the soured mortgage-backed securities and bad home loans brought down the banks. Small banks have a disproportionately large exposure to commercial real estate. During the credit boom it was an area in which they could effectively compete with larger banks. Commercial real estate loans have stuck and unlocking of valuation is likely to take longer time than expected.

The FDIC has said it expects bank failures to cost its insurance fund about $100 billion from 2009 through 2013. The agency has ordered banks to prepay three years of industry assessments, or about $45 billion, to give the FDIC cash to handle the failures.

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