California participant in the Statewide Organizers' Conference held by the Moratorium Now! Coalition in downtown Detroit on December 6, 2008. The conference demanded the transferal of banking bailout funds to people that need relief. (Photo: Alan Pollock)
Originally uploaded by Pan-African News Wire File Photos
http://detnews.com/article/20101108/BIZ/11080328
Bank failures hit 20-year high
Smaller institutions struggle as larger firms regain health
MARCY GORDON AND DANIEL WAGNER
Associated Press
Washington — U.S. banks are failing at the fastest rate in two decades.
No, the financial crisis hasn't returned. Wall Street doesn't need
another bailout.
But in communities around the country, 143 banks have collapsed so far this year — more than all of last year. This time, the failed banks
are smaller, on average, than in 2008 and 2009. The damage to the
industry has thus been milder this time. Still, the wave of closings
points to the persistent struggles of many communities and states.
On Friday, regulators closed four small banks: One each in Maryland
and Washington state and two in California — one of the hardest-hit
states, where a dozen banks have failed this year. As larger banks
have regained their health this year, in part because of federal aid,
smaller ones have struggled. Here are some reasons why: Small banks
made the riskiest commercial real estate loans — those used to develop apartment buildings, malls and industrial sites.
Smaller banks didn't receive the taxpayer aid given to Wall Street banks.
The smaller banks haven't had to bolster their financial health as
much as larger banks have. Regulators forced big institutions to boost
their capital cushions and write off bad loans early in the financial
crisis.
An additional problem is that unlike larger banks, smaller ones can
lend only in their communities. If a local economy is weak, large
lenders can tighten credit there. They can make more loans elsewhere.
Small banks lack that option.
Despite the higher number of bank closings this year, the hit to the
banking system has been less than last year. The assets of this year's
failed banks totaled about $89 billion. That's scarcely more than half
the combined assets of the 140 banks that failed in 2009.
The smaller size of this year's failed banks has meant that the
government has had to pay about $21 billion to cover losses to
depositors. That compares with $36 billion last year.
Analysts expect 160-200 banks to close this year, and a similar number
next year.
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