Weekend Economists Ring in the Old, Wring Out the New: Dec. 30, 2011 to Jan. 2, 2012

[Demeter]

40. Bank Failures Ease At End Of 2011, But Many More Expected In 2012 WSJ

http://online.wsj.com/article/BT-CO-20111230-708417.html

U.S bank failures have slowed to a trickle at the end of 2011, but that doesn't mean they're coming to an end. The failures continued to abate in both number and size this year, and the ranks of distressed banks at risk of failing finally diminished. However, a newer, slower pace at which distressed banks are folding suggests small, plodding failures could extend far into the future. This year, only 92 banks failed, compared with 157 in 2010 and 140 in 2009. The size of failed banks has dropped even more sharply: The total amount of assets at failed banks this year is down 63% from last year.

Banks at risk of failing are also fewer. In August, the Federal Deposit Insurance Corp. said its problem list--a quarterly tally of banks in greater danger of failing--shrank in the second quarter for the first time in nearly five years. The list declined again in the third quarter, standing at 844 "problem" institutions at the end of September. But it's the pace of failures that has made one of the starkest declines. So far in December, only two banks have failed with a total asset value of $288.9 million, a far cry from January's 11 banks with $7.35 billion in assets. Nearly an entire month passed between mid-November and mid-December without a single failure.

Trepp LLC, in the researcher's 2012 banking sector outlook, noted that it still has more than 200 banks categorized as high risk of failure. It predicted many of those won't be able to raise sufficient capital or shed the necessary troubled assets to avert failure, leading Trepp "to believe that failures will remain a feature of the bank landscape in 2012 and beyond."

However, one element that held relatively steady this year was the costliness of failures. For every dollar in failed-bank assets this year, the FDIC's Deposit Insurance Fund absorbed an estimated cost of 20.5 cents, relatively steady with the 23 cents of last year.