Seven more banks fail, bringing this year's total to 52

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Late last week, just before the long Fourth of July weekend, seven more banks closed, bringing this year's total of failed banks to 52. And if you're the sort of person who lies awake night thinking about these things, or if your money was with one of these failed banks, you may have questions.

So I thought I'd offer a recap of what's been going on, and ask (and answer) a few questions that I imagine people are wondering.

The recap: In Illinois, John Warner Bank in Clinton was closed for business, along with First State Bank of Winchester, Rock River Bank in Oregon (Illinois), Elizabeth State Bank in Elizabeth, First National Bank in Danville and Founders Bank in the ironically-titled Worth. In Texas, it was Millennium State Bank in Dallas, which is now part of the State Bank of Texas.

If I have money in a troubled or failed bank, should I be panicking?
Most people, no. The FDIC (Federal Deposit Insurance Corporation) is looking for buyers for a lot of these banks, and often finding them -- and then when that happens, short of getting some mail, telling you that your bank is under new ownership, you're not likely to notice anything different. For instance, the six aforementioned banks in Illinois, which had 29 branches, that shut down already have multiple new owners. For the customers of banks who can't find a new owner -- which happened last month to the Community Bank of West Georgia -- those folks will get their money back, provided they had less than $250,000 in their accounts. (The FDIC insures all accounts up to $250,000, so provided you don't have more than that in a bank account; most banks are FDIC-insured.) That said, the people who belonged to the Community Bank of West Georgia had to go at least two weeks without access to their money, so it's not a picnic if your bank fails.

Why are these banks still failing?
Entire books will be written about these bank failures, but in the simplest of terms -- this is all still fallout from what brought our economy down last fall: too many risky investments, risky in part because many banks weren't diversified enough in their investments, most of which were over-tangled in mortgage-backed assets. And since unemployment continues to rise, and people continue to be clobbered by their lack of credit and higher interest rates, which means they don't have as much money, they're falling behind on their mortgages.

So the banks sunk most of their investments in housing -- they're still having problems. It's bad news, worth losing sleep over, but at least it's not new bad news, which should be kind of heartening.

If you're morbidly curious... you may want to check out this list, put up by the FDIC, of banks that have failed since 2000. But so far, Georgia leads with the most failed banks since 2007, the year the recession began, Illinois is second, and California is third.

Are more banks likely to fail?
Oh, yeah. Shelia Bair, chairman of the FDIC, said just last month that the banking crisis was far from over, and that there would be "many more bank failures ahead." Since that statement, perhaps a dozen banks have closed. Clearly, much more "fun" is in store.

Geoff Williams is a freelance journalist who often writes about money and banking issues. He is also the author of C.C. Pyle's Amazing Foot Race: The True Story of the 1928 Coast-to-Coast Run Across America (Rodale).
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