Saturday, October 17, 2009

U.S. bank failure tally hits 99 for 2009

WASHINGTON (Reuters) - One more U.S. bank was shuttered on Friday, as the tally of failures so far this year inched closer to 100.

The pace of bank failures has picked up sharply this year as the industry continues to work through bad loans that were made during the credit boom.

On Friday regulators closed San Joaquin Bank of Bakersfield, California. It was the 99th U.S. bank failure of 2009.

The Federal Deposit Insurance Corp, which was named receiver, said San Joaquin had $775 million in assets and $631 million in deposits.

Citizens Business Bank of Ontario, Calif., agreed to assume all deposits of San Joaquin, whose five branches will reopen on Monday as branches of Citizens Business Bank.

The failure is expected to cost the FDIC's insurance fund a total of $103 million.

U.S. bank failures have not reached the 100 mark since 1992 during the savings and loan crisis when 181 institutions were closed. In 1989, during the height of the savings and loan crisis, 534 banks failed.

Bank failures have drained the fund's balance, which turned negative at the end of the third quarter.

The FDIC, which insures accounts up to $250,000, has proposed a plan to boost its liquidity by having banks prepay three years of regular assessments.

The agency is expecting bank failures to cost the insurance fund about $100 billion from 2009-2013, and said failures will remain elevated this year and next.

The pace of bank failures is expected to remain rapid as banks' woes migrate from deteriorating subprime loans to commercial real estate loans.

The size of the failures, however, has dramatically decreased from last year, when panic in the financial markets caused many firms to topple or receive government bailouts.

"These are like aftershocks compared to the earthquakes we experienced in 2008," said Andrew Kuritzkes, a partner at consulting firm Oliver Wyman.

The largest bank failure of the current crisis was Washington Mutual, which was closed in September 2008, and had assets of $307 billion.

Other large banks, such as Wachovia, were sold when they ran into severe distress, and other financial firms received massive taxpayer bailouts, such as American International Group, which received government commitments of up to $182.5 billion.


Bank regulators sounded the alarm this week about the commercial real estate (CRE) sector, telling a Senate banking subcommittee that it represents the "greatest challenge" facing banks.

Officials are close to finalizing guidance that would encourage banks to recognize potential losses in their commercial real estate portfolios and not simply renew troubled loans to delay loss recognition.

"Prices for both existing commercial properties and for land... have declined sharply in the first half of this year, suggesting that banks are vulnerable to significant further deterioration in their CRE loans," U.S. Federal Reserve Board Governor Daniel Tarullo told the Senate panel on Wednesday.

As of June, commercial real estate loans totaled more than $1 trillion, or 14.2 percent of all loans and leases in the banking industry, FDIC Chairman Sheila Bair said at the same hearing.

She said that area will increasingly be a driver for bank failures during the remainder of this year and 2010.

Petrasic said it is largely community banks, not national banks, that have significant commercial real estate exposures that will continue to spiral downward in value.

"It will absolutely be the most critical factor going forward," he said.

(Reporting by Karey Wutkowski and Ayesha Rascoe)

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