A look back at the bank failures of 2009

Well, the numbers appear to be in: The bank total failure for 2009 stands at 140. So what exactly does that mean? Let's take a look.

It was a bad year for banks, but it could have been worse. In fact, it could have been much worse. For instance, during the Great Depression, we lost approximately 9,000 banks, most of them collapsing in the first few years of the 1930s. And if you go back just 17 years to 1992, we lost 181 banks, thanks to the infamous savings and loan crisis, which was nothing compared to 1989 (also due to the S&L crisis) when we lost 531 banks.

But 140 bank closures isn't a number to easily dismiss. For instance, if we take a look back at 2005 and 2006, no banks failed in either of those years in the U.S., although those were two unusual years preceding some pretty bad years. Since the Federal Deposit Insurance Commission began tracking bank failures in 1934, the United States has had at least one bank fail every year except in 2005 and 2006. In 2004, a more typical year for bank failures, four banks bit the dust.

In the long run, as lousy as 2009 has been for bank failures and even though the FDIC has hired more staff and is preparing for banks to continue failing in 2010, we don't appear to be in any sort of Bank Armageddon.

Worst states to have a bank in: Georgia comes in first with 25 bank closures. Illinois had 21 banks buy the farm, with California at 17 and Florida at 14.

Best states in which to have a bank: Interestingly enough, Texas, which was ground zero for a lot of the savings and loan institutions that failed during the 1980s and early 1990s, was one of the better states in which to have your money in a bank. Just five banks failed in Texas in 2009. In fact, USA Today reports that the FDIC brought 44 of its Dallas-based bank veterans out of retirement to help navigate all the bank closings.

Still, the states with the best records were West Virginia, South Carolina, Tennessee, Mississippi, Arkansas and Louisiana -- these states had no bank failures.

The smallest banks dominated the failure list.I'm not trying to suggest that all small banks had a bad year. Community banks were often praised for not having made the dunderhead investments that helped get us into this recession, but in 2009, odds were, if a bank was going to fail, it would be a smaller bank, which, of course, didn't get a big bailout from the government. As the insightful blog, the D&O Diary, points out, of the 140 banks that collapsed in 2009, 80% "involved institutions with less than $1 billion in assets. Indeed, 97 of the 140, or about 69%, had assets of under $500 million. 21 of the 2009 failed banks, or 15% has assets of under $100 million."

There's a good reason banks are still closing. The last wave of bank failures came on December 18 with seven banks shutting down for business and, as noted, this trend is expected to continue into 2010. Why? Well, one reason involves commercial real estate. While much of the recession has been due to the reaction from residential real estate losing its value, commercial real estate has also been in trouble, and a lot of American lenders are still floundering from watching their investments drop: Commercial real estate value has plunged 43% from its peak in October 2007.

But there's no reason to panic.
If you have money in a small bank, even if you're in Georgia or Illinois, I wouldn't rush out to put my money elsewhere. This year has gone remarkably smoothly in terms of how the FDIC has managed these bank failures. Most of the time, other banks have stepped up and taken over, and if it weren't for the name of the bank changing, most customers wouldn't have even noticed that their financial institution failed. When a bank occasionally couldn't find a new owner, as happened in mid-December with RockBridge Commercial Bank in Atlanta, customers were quickly mailed their money in the form of a check by the FDIC.

Geoff Williams is a frequent contributor to WalletPop, often writing about banking issues. He is also the co-author of the new book, Living Well with Bad Credit (HCI Books).
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