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FDIC Watch List Hits 16 Year High – Banking Problems Mount
Here are a couple of interesting facts about banks that have failed during this recession:
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The total asset size of all failed banks is $565,351,280,000
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The total exposure to the FDIC Deposit Insurance Fund is $57,161,500,000
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29.5 percent of insured banks lost money in 2009, a 25 percent increase over 2008
With 702 banks still on the watch list and nearly 200 that have already failed, I believe it is a fair prediction that the worst of the banking crisis is far from over.
If I am right, we should see anywhere between 200 and 500 banks fail during the next 12 to 15 months. Not all the banks on the watch list are going to fail.
The FDIC watch list is not made public because doing so would cause depositors to withdraw their money from any bank on the list and insure insolvency and guarantee failure of the bank.
I do not believe our economy as a whole will start to see significant recovery until we are certain that we see a several quarter trend of higher employment.
I don’t believe the average small business will have access to bank borrowing until several quarters after we see bottom of the bank failure problem. I hesitate to guess when that might occur, but I hope we see the bottom of the bank crisis in 2010. Without access to loans, any uptick in business will poise a serious problem for small business owners. With many small businesses “running on fumes” credit will be difficult, if not impossible, to obtain in order to take advantage of new opportunities.
Small businesses remain uncertain about the future in large part because of fears about increasing governmental regulation and added costs caused by congressionally mandated programs. Do you know a small business owner who isn’t worried about too much government regulation right now?
With the many major government intervention programs, being proposed by the president and congress, that would break up the largest banks and impose a “super-regulator” on banking, those in banking are paralyzed with fear. Bankers don’t make loans when they are feeling uneasy about the future.
Recently I had the opportunity to speak with a field examiner for the National Credit Union Administration (NCUA). He said the NCUA is very quietly planning for “a small but significant number” of credit unions to fail this year. He indicated they were trying to be proactive by going into credit unions they have flagged as “troubled” and assessing the situation. He said they are “pre-planning for the worst.” My source indicated that top officials of the NCUA are worried about the prospect of a small number of large credit unions failing that have been identified as being undercapitalized with a significant balance of bad loans. He did mention that of the approximately 8,000 credit unions in the country the vast majority were considered to be “well capitalized” by the NCUA.
What does all this mean to small businesses in
I think it means that although there are many positive economic indicators occurring in the economy right now, one of the weakest links is access to capital when business picks up. I don’t know the answer and I doubt this problem is even on the radar of our federally-elected officials. It will mean that small businesses will have to do more with less during an uptick in business. It will also mean small businesses will have to seek out alternative places to borrow money, and it will probably mean we will see a tough 2010 in terms of the stresses of making payroll, being vigilant about customer credit, and vendor solvency.
It will mean we have to maintain the mindset of survival for another year or more.
Sam Thacker is a partner in Austin Texas based Business Finance Solutions.
You may contact Sam directly at: sam@lesliethacker.com
or follow him on Twitter: SMBfinance
EXTRA: If you have questions for Sam regarding business financing, the credit market, and similar issues, please send an e-mail. Your questions will be recorded and Sam will answer the best ones in his Ask the Expert podcast show.
