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|
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:
- FDIC deposit insurance summary
- NCUA deposit insurance summary for credit unions
- Review of private deposit insurance for credit unions
- Verifying Your Internet Bank Deposits are FDIC Insured
- Maximize Your FDIC Coverage with Beneficiaries
- Extending Coverage with Private Deposit Insurance
- Review of 2012 Bank Failures