4um: FDIC reports second bank failure of 2008

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Title: FDIC reports second bank failure of 2008
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URL Source: http://www.marketwatch.com/news/sto ... D4CEF%2D830D%2D5864E8F591A4%7D
Published: Mar 7, 2008
Author: Robert Schroeder
Post Date: 2008-03-10 08:07:40 by angle
Keywords: None
Views: 817
Comments: 2

WASHINGTON (MarketWatch) -- A second bank has failed this year, the Federal Deposit Insurance Corp. said Friday. The FDIC and the Commissioner of Missouri's Division of Finance closed Hume Bank in Hume, Mo., on Friday, the federal banking regulator announced.
It was the second bank to fail this year, the FDIC said. The first was Douglass National Bank in Kansas City, Mo., on Jan. 25.
The FDIC didn't give a reason for the failure.
Security Bank of Rich Hill, Mo., will assume Hume Bank's insured deposits. The failed bank's sole office will open Monday as a branch of Security Bank. As of Dec. 31, Hume Bank had assets of $18.7 million and total deposits of $13.6 million. Security Bank agreed to assume $12.5 million of the failed bank's insured deposits for a premium of 4.26%, the FDIC said.
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#1. To: angle (#0)
When I read the article, my first thought was, 'how many banks fail each year NORMALLY (what a concept!)'.
I did a google and found this letter from the Federal Reserve Board of San Francisco, dated in 2005, which shows that between 1971 and 2004, there were 4,371 institutions which failed. Dividing that 33 year span into the 4,371 failures, we get over 132 units a year failing....that comes to an average of 11 failures a month.
While the article is basically about credit unions, it does include commercial banking. I left some information intact because I thought it adds some interesting info to the mix.
The URL is: http://www.frbsf.org/publications/economics/letter/2005/el2005- 20.html#subhead3

FRBSF Economic Letter
2005-20; August 19, 2005
Credit Union Failures and Insurance Fund Losses: 1971-2004
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Insurance fund losses in credit unions and in banks
Federal insurance for credit unions, which began in 1971, nearly 40 years after federal insurance began for banks, has been operated by the National Credit Union Administration, an independent agency. So far, FICUs have funded the National Credit Union Share Insurance Fund (NCUSIF) via insurance premiums and required deposits.
NCUSIF losses include the payments that it makes to those who have insured shares in failed credit unions. Figure 1 displays annual insurance fund losses as a percent of shares insured by the NCUSIF and of deposits insured by the BIF for 1971-2004. During this period, losses imposed on the NCUSIF totaled $953 million ($1,474 million in 2004 dollars), averaged 0.018% of insured shares, and peaked at 0.082% in 1982. NCUSIF loss rates exhibit three distinct regimes: averaging 0.006% during 1971-1979, 0.041% during 1980-1994, and 0.002% during 1995-2004.
From 1971 through 2004, losses imposed on the BIF totaled $38,254 million ($59,283 million in 2004 dollars), averaged 0.073% of insured deposits, and peaked at 0.395% in 1988. Thus, BIF losses were considerably larger, both in dollars and per dollar of insured deposits, than NCUSIF losses.
Failures of credit unions and commercial banks
Failed FICUs and federally insured commercial banks (FICBs) were those involved in involuntary liquidations, assisted mergers, purchase and assumptions (P&As), and cases of receipt of government assistance to avoid liquidation. The 4,371 FICU failures identified during 1971-2004 consisted of 2,314 involuntary liquidations (including P&As), 1,087 assisted mergers, and 970 cases of government assistance.
We computed annual failure rates (i.e., the percent of institutions failing) for FICUs and for FICBs of different asset sizes. Smaller FICUs and FICBs failed more often than larger ones. For instance, average annual failure rates during 1981-2004 were 1.24% for FICUs with under $1 million in assets (in 2004 dollars), 0.42% for those with $1-10 million, 0.17% for those with $10-100 million, and 0.05% for those with over $100 million. (We were unable to compute failure rates for FICUs by size before 1981.)
Compared with FICBs of similar size, FICUs typically had lower failure rates. For instance, the failure rate for FICUs with over $10 million in assets averaged 0.15% during 1981-2004 and peaked at 0.68% in 1991, while FICBs of that asset size averaged 0.52% during the period and peaked at 1.53% in 1989. Though often less well-diversified than banks, FICUs may have had lower failure rates because they generally made loans, such as (collateralized) auto loans, that on average have imposed smaller losses on lenders.
Figure 2 displays annual failure rates for FICUs and FICBs for 1971-2004. The FICU failure rate averaged 0.95% per year and peaked at 2.67% in 1981. The failure rate for FICBs averaged 0.40% per year and peaked at 2.04% in 1988. Despite having lower failure rates than similarly sized FICBs, the failure rate across all FICUs was higher than that for FICBs because (1) FICUs are typically smaller than FICBs and (2) smaller institutions have higher failure rates. In fact, 47% of FICUs held under $10 million in assets in 2004, while fewer than 2% of FICBs were that small.
During the 1970s and 1980s, high and volatile unemployment, inflation, and interest rates adversely affected depositories of all kinds. Some analysts argue that bank and thrift regulators often delayed closing seriously troubled institutions (Kane and Hendershott 1996, Hanc 1998). If delaying closures increased eventual insurance losses, then artificially low recorded FICB failure rates in the early 1980s may have both delayed BIF losses and raised their eventual total amounts. Conversely, less delay in closing troubled FICUs may have led to high recorded FICU failure rates in the early 1980s, but avoided larger eventual total losses imposed on the NCUSIF.
Other measures of failures and insurance losses
Failure rates are based on the numbers of failures, rather than the dollar losses that failures impose. However, uninsured depositors, unsecured creditors, and deposit insurers are interested not just in whether depositories fail, but also in how severe their losses might be. Two additional measures of the severity of losses are (1) losses imposed on an insurance fund per dollar of assets in failed depositories and (2) assets in failed depositories per dollar of assets in all depositories.
NCUSIF losses per dollar of assets in failed FICUs averaged 14% annually from 1984-2004 and ranged from 7% in 1999 to 43% in 1997. In contrast, BIF losses per dollar of assets in failed FICBs averaged 15% annually over the same period and ranged from 7% in 1991 to 79% in 1998. Since the claims of insured accountholders have priority over those of bondholders and tended to be larger than the remaining assets of failed FICUs or FICBs, bondholders would have been unlikely to recover much of their investments in either FICUs or FICBs that later failed.
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The macroeconomic shocks of the 1970s and 1980s also revealed credit unions' exposure to risks associated with financial regulation. Like other depositories, credit unions were then importantly limited in the types of deposits, loans, and products and services that they could provide, and their interest rates on loans and deposits were constrained by regulatory ceilings. In addition, each credit union's field of membership was typically so narrowly defined that credit unions were precluded from achieving much diversification across either their borrowers or their savers. Such restrictions likely contributed to the high failure and loss rates of credit unions in the 1970s and 1980s. Deregulation has since enhanced credit unions' ability to manage their interest rate, credit, and (lack of) diversification risks, much as it has for banks.
Conclusion
Our newly constructed data show that failure rates have typically been lower for larger than for smaller credit unions and lower for credit unions than for commercial banks of similar size. Credit unions also tended to impose lower loss rates on their insurance fund than commercial banks did.
Our data also show that credit unions' failure and loss rates, like those of banks, fluctuated with the macroeconomic environment. The relatively stable macroeconomic performance of recent years contributed to both failure and loss rates that were lower than their historical averages.
James A. Wilcox Visiting Scholar, FRBSF, and Professor, Haas School of Business, UC Berkeley
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Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of San Francisco or of the Board of Governors of the Federal Reserve System. Comments? Questions? Contact us via e- mail or write us at:
Research Department Federal Reserve Bank of San Francisco P.O. Box 7702 San Francisco, CA 94120
Turn your back on the sun and you only see the shadows.
rowdee posted on 2008-03-10 12:25:01 ET Reply Trace Private Reply
#2. To: angle, *Destroying the Middle Class* (#0)
It was the second bank to fail this year

It's only March 10th
'He will make Cheney look like Gandhi.'
U.S. conservative pundit Pat Buchanan, imagining presidential hopeful John McCain in the White House.
robin posted on 2008-03-10 13:33:00 ET Reply Trace Private Reply
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