Financial institutions weather failure

The banking industry has remained under stress the past year and for the beginning of this one. The FDIC added 450 institutions to the already lengthy list of anonymous challenged lenders ending at 702 in 2009. This list has hit an all-time high since 1993.
One local institution that felt the strains of the government-administered insurance funds is Barnes Bank. It recently closed its doors after filing for bankruptcy on Jan. 15.
Russell Kohler, a previous Barnes Bank customer, expressed his concern after the closure.
“It’s unfortunate that some banks are in so much trouble nowadays,” Kohler said. “It was especially frustrating having to close out my accounts without much notice.”
The nation has weathered its worst run of bank failures in nearly two decades, running the FDIC’s insurance fund deeper into the red and making 2009’s deficit almost $20.9 billion. The annual report on the banking industry has suggested that many of the nation’s 8,100 lenders broke even during last year, but that many remain in a delicate condition, especially smaller lenders.
The added strain financial institutions have been forced to endure could cause many additional banks to fail. So far in 2010, the FDIC has seized and sold around 20 banks. Analysts suspect that several hundred more small lenders will collapse over the next few years. The number of problem banks rose by 150 in the fourth quarter alone, bringing the number of troubled banks to nearly one in 11 lenders, the most failures in almost 17 years.
Karen Price, a manager at a local bank, said she wasn’t worried about the recent downfall of the banking industry.
“Our financial institution is extremely secure ­­— in fact, one of the most secure,” Price said. “It’s about being able to choose a good bank. If you are a client with a trustworthy bank you really have no reason to worry.”
Sheila Bair, FDIC chairwoman, has said there is at least minute progress in the right direction.
“There is incremental improvement,” Bair said to The New York Times. “We are seeing some encouraging signs here. Overall, the banking system is challenged but stable.”
In 2009 there was a $12.5 billion profit, far less than $100 billion in annual profits two years earlier. Many community lenders, which do not have big trading businesses, suffered large losses last year. Officials worry they will be reluctant to lend to small businesses and other customers until they replenish their treasury.
The bulk of the insurance fund’s losses come from money previously set aside to cover future bank failures, so it can continue to operate in the red. Last fall, officials ordered thousands of member banks to begin prepaying their annual assessments, which would have otherwise been due in 2012. This move is expected to add around $45 billion to the insurance fund coffers.
Though financial institutions seem to be on a downward slope, actions are being taken to prevent and repair the problem.
“I really hope bank closings don’t continue to happen around here,” Kohler said. “Hopefully we will see an incline in the industry.”