It’s only three years into the crisis. They’re clearly on the cutting edge of business journalism with their groundbreaking news of a growing number of failing banks. At this rate, they’ll discover the Great Depression 2.0 towards the end of 2013:
Nearly 100 U.S. banks that got bailout funds from the federal government show signs they are in jeopardy of failing. The total, based on an analysis of third-quarter financial results by The Wall Street Journal, is up from 86 in the second quarter, reflecting eroding capital levels, a pileup of bad loans and warnings from regulators. The 98 banks in shaky condition got more than $4.2 billion in infusions from the Treasury Department under the Troubled Asset Relief Program….
Seven TARP recipients have already failed, resulting in more than $2.7 billion in lost TARP funds. Most of the troubled TARP recipients are small, plagued by wayward lending programs from which they might not recover. The median size of the 98 banks was $439 million in assets as of Sept. 30.
This little table shows the real problem at hand. It’s from the spreadsheet of bank failures that I’ve maintained for the last two years and shows the number of failed banks along with the number of problem banks with a high risk of failure published by Calculated Risk. These “problem banks” are an unofficial tally, but the list tends to precede the official FDIC list of problem banks with a fair degree of accuracy.
2007: 76 problem banks, 0 failed banks
2008: 252 problem banks, 25 failed banks (33%)
2009: 545 problem banks, 140 failed banks (56%)
2010: 919 problem banks, 157 failed banks (29%)
This is why I expected more than 200 failed banks in 2010. I didn’t expect a seizure rate of 56%, but I did assume it would be over 40% given the continuously rising number of problem banks. However, the percentage of problem banks that were seized by the FDIC fell from 56% to only 29% this year. However, the number of problem banks continued to rise, so even if the percentage of problem banks seized by the FDIC remains around 30% in 2011, that would indicate 276 bank failures in 2011. And at the 2010 average of 262 million in bad assets per bank failure, there would be $72.3 billion in bad bank assets going up in smoke and $130 billion+ in deposits, nearly 2% of total deposits, put in jeopardy.
In other words, don’t trust the recovery crowd. Temporarily papering over a problem is not the same thing as fixing it.