Another bank fails as the FDIC's burden grows
A 16th American bank has failed this year. According toMarketWatch, "Henderson, Nev.-based Security Savings Bank was closed by regulators Friday, marking the 16th bank failure of 2009. The Federal Deposit Insurance Corporation said the failed bank's deposits have been assumed by Las Vegas-based Bank of Nevada."
The incident raises the question, once again, of how many banks will fail during the recession and what the FDIC will have to pay out in deposit insurance. The agency's list of troubled banks as of the fourth quarter had 252 financial firms on it. Many experts say that the list is much too small. RBC Capital, an investment bank and research firm, says over 1,000 bank will go under before the economic downturn ends. Investor Wilbur Ross has predicted a similar number.
If the pessimists are right and the FDIC is substantially under-counting the number of banks which may disappear, then the federal government is using unrealistic figures and under-counting what the Treasury may have to pay out. During the S&L crisis three decades ago, 747 banks failed -- and a figure that high for the current crisis is not out of the question.
As the Treasury keeps writing huge checks to keep the financial system afloat it may want to take into account the the FDIC could need tens of billions of dollars it does not have.
Douglas A. McIntyre is an editor at 24/7 Wall St.