Those who are skeptical of the economic negativity expressed in RGD may wish to keep in mind that I projected failed bank deposits would reach 1.4 percent of total deposits in 2009. After the seven bank failures yesterday, including four large banks with more than $1.5 billion in nominal assets each, that percentage has now reached 1.84 percent. If next week’s Bank Failure Friday is of similar size, the 2009 percentage will reach 2 percent. The chart below compares the historical failed deposits of 1929-1931 to 2008-2010; the 2010 estimate is based on 400 banks failing with the same deposit average of the 2009 failures.
While the widespread rumors of 400 banks being projected to fail next year may be exaggerated, it’s fairly obvious that more than 150 are expected to collapse since the FDIC is expanding its work force by 1,600, an increase of nearly one-fourth, in order “to help with bank closings and examinations.”