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Pause in Closings, but Number of Problem Banks May Be Stabilizing

In a rare break from what has been the ""norm"" throughout the recession, this weekend saw no bank closings. Since January 2008, more than 280 ""banks and thrifts have collapsed"":http://www.fdic.gov/bank/individual/failed/banklist.html, most as a direct result of problems[IMAGE]in the real estate markets. The elevated number of institutional failures over the past two and a half years has cost the FDIC upwards of $70 billion.

Matthew Anderson, managing director for the research firm ""Foresight Analytics"":http://www.foresightanalytics.com, a division of ""Trepp, LLC"":http://www.trepp.com, says bank closings have been averaging three to four per week during 2010. (The previous weekend, the FDIC stepped in to help shut down eight community banks.)

Anderson explained that the number of closures from week to week can vary dramatically. He says it often takes several weeks, at least, from when regulators decide to close a bank till when the shuttering actually takes place. Bids from acquiring banks need to be solicited and a team from the FDIC needs to be assembled and transported to the bank headquarters, Anderson said. Plus, he notes, it can take a while for regulators to reach a decision on a given bank, including coordination between federal and state regulators.


Anderson says it's possible the pause in closures was related to preparation for the FDIC's quarterly banking report, which is scheduled for release Tuesday.

The lull in closings this weekend is almost certainly temporary. Bank failures will continue to be a feature of the landscape for several more quarters at least, according to Foresight Analytics.

""Our research indicates that 200 and possibly 300 to 400 banks are at risk of failure over the next 12 to 24 months,"" the company said in a research note Monday. ""If CRE [commercial real estate] prices remain weak and fundamentals erode substantially, then the recent moderating trends in bank distress could intensify again.""

Weighing heavy on the banking sector is the fact that distress is still high, according to Foresight Analytics, especially among many banks with high CRE concentrations. But, the company says, given some improvement in charge-off and loss provision trends, the number of troubled banks is likely to level off.

As of the first quarter, the number of banks on the FDIC's Problem List was 775, but Foresight Analytics says, ""If the trends in our own ‘Watch List' are a guide, we think the FDIC's Problem List will either level off or even slightly decline.""

According to the company's estimates, commercial real estate loans contracted by $45 billion during the second quarter. Construction is the weakest CRE loan type and represents 80 percent of the decline, but Foresight Analytics says even commercial mortgages outstanding fell by $9 billion in Q2. The company says regional and community banks that had high CRE exposures going into the downturn have been trying to shed some of their commercial real estate loans.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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