The frequency of bank failures continued to trend down in 2014. The year 2014 ended with 18 bank closures. That's a decline in the number that failed in 2013 when 24 banks failed. It's the fourth straight year of declining bank failures. If you were a reader of this blog back in 2010, you probably remember my Friday bank failure posts. Almost every Friday multiple banks failed. Things have changed quite a bit. In 2014 there were months with no 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:
- 2005: 0
- 2006: 0
- 2007: 3
- 2008: 25
- 2009: 140
- 2010: 157
- 2011: 92
- 2012: 51
- 2013: 24
- 2014: 18
Most of the 2014 bank failures were little-known community banks. One trend that started in 2010 and has continued through 2014 is that fewer large banks are failing. In 2014 there were no banks that failed with assets of at least $1 billion. The largest bank that failed was The National Republic Bank of Chicago which had total assets at the time of closure of $954 million. In 2011 there were seven failed banks with assets over $1 billion, and in 2010 there were 23. 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 18 banks that failed in 2014, 10 had assets under $100 million. Only 3 had assets of over $200 million. The smallest had only $19 million in assets.
The small size of the 2014 bank failures helped keep down the cost to the FDIC Deposit Insurance Fund (DIF). The FDIC reported a DIF balance of $54.3 billion at the end of Q3 in 2014. This is up considerably from the previous year when the DIF balance was $40.8 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 5 bank failures, Illinois had more bank failures in 2014 than any other state. Maryland and Oklahoma were the only other two states with multiple failures (both had two). Since the start of the financial crisis in 2008, there have been 88 bank failures in Georgia, 71 in Florida and 61 in Illinois.
Below is a graph showing the number of banks that failed in each state during 2014:
|#||State||Number of 2014 bank failures|
Failed Banks That Weren't Acquired by Other Banks
For the previous years since the financial crisis, the FDIC has been 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.
All of the 18 banks that failed in 2014 were acquired by another bank. That was good news for depositors since that means no bank depositor lost any money in 2014 due to a bank failure. In 2013, only one of the 24 banks that failed wasn’t acquired.
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. Most of the acquiring banks in 2014 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 2014, 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 12 credit union liquidations in 2014. 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 2013 14 credit unions failed, and in 2012 15 failed.
One of the 12 failed credit unions was privately insured. This is the third privately insured credit union to fail since 2011. These were credit unions that were insured by American Share Insurance (ASI) without any deposit insurance from the NCUA. Like the previous failures, the ASI arranged for another credit union to assumed all of failed credit union’s share account liabilities (deposits). Thus, no member lost any money.
Out of the 11 federally insured credit unions that failed in 2014, three were tiny credit unions with assets under $1 million. Only 6 had assets over $10 million. The largest one had $51 million in assets. This was St. Francis Campus Credit Union of Little Falls, Minnesota, and its closure was the subject of an FBI investigation.
What To Expect for 2015?
I think it's likely that we'll see fewer bank failures in 2015. The number of bank failures was trending down in 2014. The first half had 12 bank failures, and the second half had only 6 failures.
In the FDIC's Q3 report, the number of "problem" banks declined from 354 to 329. The previous year number had been 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 401 banks on Calculated Risk's unofficial problem bank list. Last year there were 619 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 2014 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 2013 Bank Failures