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Review of the 2013 Bank Failures and Their Effects on Depositors

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Review of the 2013 Bank Failures and Their Effects on Depositors

The frequency of bank failures continued to trend down in 2013. The year 2013 ended with 24 bank closures. That's a big decline in the number that failed in 2012 when 51 banks failed. It's the third straight year of declining bank failures. It's a sign that economic normalcy is returning which will eventually lead to higher deposit rates.

The summary below shows the number of bank closures per year since 2005. It's hard to believe that bank failures were so rare between 2005 and 2007.

  • 2005: 0
  • 2006: 0
  • 2007: 3
  • 2008: 25
  • 2009: 140
  • 2010: 157
  • 2011: 92
  • 2012: 51
  • 2013: 24

Most of the 2013 bank failures were little-known community banks. One trend that started in 2010 and has continued through 2013 is that fewer large banks are failing. In 2013 there was only one bank with assets over $1 billion that failed. That was First National Bank of Edinburg, Texas which had total assets at the time of closure of $3.1 billion. In 2011 there were seven failed banks with assets over $1 billion, and in 2010 there were 23. In 2009 there were seven failed banks that had over $5 billion in assets with the largest being Colonial Bank with $25 billion. The largest bank that failed was in 2008 when WaMu was closed. It had $307 billion in assets. WaMu still holds the record for the largest U.S. bank to fail.

Out of the 24 banks that failed in 2013, half had assets under $100 million and the other half had assets of $100 million or above. The smallest had only $20 million in assets.

The small size of most of the 2013 bank failures helped keep down the cost to the FDIC Deposit Insurance Fund (DIF). The FDIC reported a DIF balance of $40.8 billion at the end of Q3 in 2013. This is up considerably from last year when the DIF balance was $25.2 billion. The FDIC reported a DIF balance of negative $7.4 billion at the end of 2010. At the end of 2008 when it was clear that many banks had to be closed, the FDIC increased the premiums it charged banks for deposit insurance. With the number and size of failed banks going down, this should lead to lower premiums which will make it a little easier for banks to offer higher deposit rates.

States with the Most Failures

With four bank failures, Florida had more bank failures in 2013 than any other state. Georgia and Arizona were close behind with three failures each. Ten other states had either one or two bank failures. Last year Georgia had the most bank failures with Florida and Illinois close behind. Since the start of the financial crisis in 2008, there have been 87 bank failures in Georgia and 70 in Florida.

Below is a graph showing the number of banks that failed in each state during 2013:

# State Number of 2013 bank failures
1 FL 4 ****
2 AZ 3 ***
3 GA 3 ***
4 NC 2 **
5 TN 2 **
6 TX 2 **
7 WI 2 **
8 CT 1 *
9 IL 1 *
10 KY 1 *
11 MN 1 *
12 NV 1 *
13 WA 1 *

Failed Banks That Weren't Acquired by Other Banks

Just like in previous years, the FDIC was able to find buyers for the vast majority of banks that failed. In those cases, the acquiring banks assumed all regular deposits including amounts over the FDIC limit. So for most people who had deposits over the FDIC limit at these failed banks, they were lucky. No uninsured deposits were lost. The only exception was brokered deposits. It was common that the acquiring banks did not assume some brokered deposits. The banks probably didn't see any benefit from assuming these types of deposits since there are no relationships with the depositors.

Out of the 24 failures, I counted only one bank that was not acquired. That was The Community's Bank of Bridgeport, CT which had $26 million in assets and $26 million in deposits. The bank was closed on September 13th.

The Loss of High CD Rates When Your Bank Fails

The main issue for depositors when banks fail is the loss of the high interest rate on their existing CDs. By law the acquiring banks are allowed to lower the interest rates on existing CDs. Many of the acquiring banks in 2013 did make use of this allowance. The depositors are free to close the CDs without a penalty, but in today's interest rate environment, it's impossible to replace those CDs with new ones with the same high rates.

Most of the acquiring banks didn't publicly announced their policy on the existing CDs from the failed banks. For most of the bank failures in 2013, the FDIC just provided the following about interest rates:

Interest on deposits accrued through close of business the day the bank was closed will be paid at your same rate. Current rates will be reviewed by the new bank and may be lowered; however, you may withdraw funds from any transferred account without early withdrawal penalty until you enter into a new deposit agreement.

Credit Union Liquidations

There were 14 credit union liquidations in 2013. Unlike banks, we didn’t see a spike of credit union failures in the financial crisis. The number of failures haven’t changed much in the last few years. In 2012 15 credit unions failed, and in 2011 16 failed.

No privately insured credit unions failed this year. Two privately insured credit unions failed in 2011 and 2012. These were credit unions that were insured by American Share Insurance (ASI) without any deposit insurance from the NCUA.

Out of the 14 federally insured credit unions that failed in 2013, six were tiny credit unions with assets under $1 million. Only four had assets over $10 million. The largest only had $31 million in assets. This was PEF Federal Credit Union of Highland Heights, Ohio.

What To Expect for 2014?

I think it's likely that we'll see fewer bank failures in 2014. The number of bank failures has been trending down in 2013. The first half had 16 bank failures, and the second half had only 8 failures.

In the FDIC's Q3 report, the number of "problem" banks declined from 553 to 515. The FDIC doesn't disclose the banks on this list or the specific criteria it uses to place banks on this list. There are ways that we can make guesses about which banks may be on this list.

There are 619 banks on Calculated Risk's unofficial problem bank list. Last year there were 838 banks on the list. This list is based on publicly available enforcement actions that regulators have released or that have been reported by banks' SEC filings..

In our bank health ratings page, we have a list of the banks with the worst Texas Ratios. The Texas Ratio is an industry standard for calculating the health of a bank, but is not the only factor to consider. Our data is based on Q3 2013 financial data from the FDIC. A Texas Ratio over 100% is considered at risk.

References to Help Keep Your Deposits Safe:

List of Bank and Credit Union Failures:



Related Posts

Comments
12 Comments.
Comment #1 by Shorebreak posted on
Shorebreak
More Credit Unions Will Buy Banks Next Year

"there is an overall sense of fatigue among bank executives and directors, according to Chip MacDonald, a lawyer at Jones Day, also Atlanta. "People are tired," MacDonald said. Banks are "having a hard time generating sufficient profits in this low interest rate environment."

http://www.cunacfocouncil.org/news/5687.html

5
Comment #2 by Anonymous posted on
Anonymous
"Banks are "having a hard time generating sufficient profits in this low interest rate environment."  ?
He can't be serious!  Not according to the bank profit reports I've been reading about.  And all the added fees banks have been charging.

6
Comment #3 by Shorebreak posted on
Shorebreak
He is referring to small banks. "That's the opinion of industry experts and insiders following a KPMG survey that found one-fourth of banks from $1 billion to $20 billion in assets expect to sell in 2014 due to growing earnings and compliance pressures."

7
Comment #4 by Anonymous posted on
Anonymous
The small banks near me are disappearing. One local bank that had many branches (Provident) just got taken over by Sterling bank

4
Comment #5 by Anonymous posted on
Anonymous
Yes, and in some cases, I have heard it from insiders, smaller banks have actually wooed larger conglomerate banks to take them over.  Huge profits for the upper echelon of the smaller banks. 

3
Comment #7 by Anonymous posted on
Anonymous
Shorebreak, another misinformation from you. The banks are solvent today and they make a nice sum of profits from:
1-Investments (stocks, bonds, preferreds)
2-Loans, cost them almost nothing but charge 4-5% interest
3-Regular customer fees and services
4-Penalties, overdrafts, non sufficient funds etc.

The problem is not the shortage of money or customers, the problem is in internal speanding on labor, technology, web sites upkeeps and insrances including FDIC fees.
The growth is small because all of their investement are insured on the secondary market in order to comply to the banking laws.
I know this because I just retied from a bank as a controller.

5
Comment #8 by Shorebreak posted on
Shorebreak
"Shorebreak, another misinformation from you. "
1. I didn't write the article.
2. You probably didn't read it.
3. You remain "anonymous" because you you just don't get it.

6
Comment #6 by Anonymous posted on
Anonymous
FDIC ran out of money to continue with the closures, but they have sent thousand cease and desist letters and warnings to as many banks. The above numbers do not tell the real story of our banking (ill) system.

2
Comment #9 by Shorebreak posted on
Shorebreak
Where did you get this information? Please list the source. Thank you.

3
Comment #10 by Shorebreak posted on
Shorebreak
As expected from one of those "Anonymous" trolls as in Comment #6...just a bunch of hogwash.

5
Comment #11 by Anonymous posted on
Anonymous
Yikes!!! The FDIC has run out of money? But, what about this statement earlier this year from Bloomberg?:

"The federal backstop, funded by assessments on banks, was at $33 billion at the end of 2012, up from a deficit of $20.9 billion at the end of 2009 as the credit crisis caused banks to fail. The FDIC predicted it will spend $5 billion to cover bank shutdowns in the next five years, a projection that has been rapidly declining as the industry improves, according to a report issued today updating the fund’s health."

Must be government propaganda. Quick, everybody! Get your money out of those so-called insured banks and bury it in the backyard.

6
Comment #13 by Anonymous posted on
Anonymous
Bloomberg as usual being biased, is spreading Obama's and the democrats propaganda, that everything s O.K. and we know what we are doing, trust us, but DO NOT verify our statements if you do not like to feel as you are being LIED to.

3