No bank failures this Friday

February 13, 2010

With the problem bank list 552 names long, and the unofficial list even longer, one might expect FDIC to pick up the pace of bank closures. Yet here we are, six Fridays into the new year, and only 16 banks have been put into receivership, with none this week and only one last week. At that rate, we’ll see 136 closures in 2010, short of the 140 that were closed last year.

That leaves lots of zombie institutions hobbling along, sucking up deposits and capital to service busted loan portfolios.

A key lesson from the S&L debacle is that delays in closing insolvent banks increases the resolution costs for FDIC and, ultimately, taxpayers. That’s why the Prompt Corrective Action law was passed, to mandate that regulators close banks sooner rather than later, and while there’s still some capital left in them to absorb losses.

With that in mind, it’s hard to see why FDIC is moving so slowly. FDIC’s not short of cash right now. It just got $45 billion of fresh cash from banks on January 1st.

Nor should the President’s Day holiday be slowing them down. FDIC used July 4th weekend last year as an opportunity to close seven banks.

Bad weather in DC? Probably not. FDIC is a large operation and it’s unlikely folks in the field can’t do their job because the Washington office is taking a few snow days.

President Obama says he wants to jump start lending. Closing zombie institutions more quickly would be a much more effective way to achieve that than, for instance, throwing $30 billion  of TARP money at community banks…

One comment

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The FDIC has been stepping in when losses are ~ 30%, and sometimes up to 40%. Shows the degree of regulatory forbearance that is operative, in violation of statute.

Posted by tjfxh | Report as abusive