Sunday, June 28, 2009

US bank failures: starting to make waves; Georgia's taking the prize

There have been 40 bank failures to date in 2009. This is 1.6 times the failures in all of 2008 (25); and still, more are hopefully to come. The consolidation is still meager compared to the S&L crisis in the 1980's and 1990's. Notice that it took over a decade for the S&L crisis to work through, peaking at 531 bank failures in 1989, but averaging 253 failures per year 1986-1993 (get a time series of bank failures here).

Note: You can find a complete list of bank failures at the FDIC's website here. Notice that roughly 20% of the bank failures in 2008 and 2009 have been in Georgia, or as Camden Fine says to the WSJ, "Georgia is basically the Chernobyl of banking right now; it's radioactive down there". And according to the Wall Street Journal, the failures in Georgia have only just begun:
During a recent meeting with Georgia bankers, Federal Deposit Insurance Corp. Chairman Sheila Bair asked Christopher Maddox, head of Peoples Bank in Winder, Ga., why Georgia had so many banks. "Ma'am, may I respectfully submit that the FDIC approved every one of the applications," he recalls replying.

Georgia's predicament also is the result of a rapid expansion of the banking industry. Many of the new banks were small, and as they jostled for slivers of the market, they often made risky loans in speculative markets such as commercial real estate.

That was exacerbated by Atlanta's housing expansion and a decentralized government structure of 159 counties, where tradition holds that "every county has its own bank," said Christopher Marinac, managing principal at FIG Partners, a bank-research firm in Atlanta.

Rebecca Wilder


  1. Rebecca:

    Wow...who would have thought my home state of Georgia is the "Chernobyl of banking right now"! I will have to check in on my relatives who bought rental properties during the boom.

  2. Hi David,

    Good thing that the FDIC increased the insurance limit!

    Thanks for stopping by - Texas and Georgia, eh?....