USB US Bancorp

After a week’s pause, U.S. regulators were back in action, shuttering two more banks in Illinois and Nevada. These pushed the number of failed U.S. banks to 28 so far in 2011. Looking back, there were 157 bank failures in 2010, 140 in 2009 and 25 in 2008.

While the lifesaving programs launched by the government worked in favor of the bigger banks, many smaller banks are still struggling to survive. Persistently plunging home prices, lofty loan defaults and a still-high unemployment rate continue to threaten such institutions.

With the industry absorbing bad loans offered during the credit explosion, the banking system is vulnerable to some severe problems. This is aggravating the risk of bank failures even further. Moreover, out of the total $245 billion handed out to banks, more than $20 billion is still due from about 600 institutions.

The failed banks are:

• Western Springs, Illinois-based Western Springs National Bank and Trust, with total assets of about $186.8 millionand total deposits of about $181.9 millionas of December 31, 2010.
• Las Vegas, Nevada-based Nevada Commerce Bank, with about $144.9 million in total assets and $136.4 millionin total deposits as of December 31, 2010.

These bank failures represent another jolt to the deposit insurance fund (DIF) meant for protecting customer accounts, as it has been appointed receiver for the banks.

The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,657 banks and savings associations in the country as well as promotes the safety and soundness of these institutions. When a bank fails, the agency reimburses customers deposits of up to $250,000 per account.

Though the FDIC has managed to shore up its DIF over the past few quarters, the outbreak of bank failures has tested its limits. As of December 31, 2010, the fund remained in the red with a deficit of $7.4 billion, slightly better than the deficit of $8.0 billion in the prior quarter. The agency expects the fund to be in the black later this year.

The failure of Western Springs National Bank and Trust is expected to deal a blow of about $31.0 million to the FDIC, while Nevada Commerce Bank will cost about $31.9 million.

Bloomington, Illinois-based Heartland Bank and Trust Company has agreed to assume the entire deposits and assets of Western Springs National Bank and Trust. The FDIC and Heartland Bank and Trust Company have agreed to share losses on $100.8 million of Western Springs National Bank and Trust's commercial loans.

Los Angeles, California-based City National Bank has agreed to assume all of the deposits and assets of Nevada Commerce Bank. The FDIC and City National Bank have agreed to share losses on $111.1 million of Nevada Commerce Bank's assets.

The number of banks on FDIC’s list of problem institutions grew to 884 in the fourth quarter of 2010 from 860 in the previous quarter. This is the highest number since the savings and loan crisis in the early 1990s.

Increasing loan losses on commercial real estate are expected to result in hundreds of bank failures in the coming years. Going by the current rate of bank insolvencies, the DIF is likely to feel a $52 billion dent by 2014. However, the pace of bank failures has been slow so far this year.

With so many bank failures, consolidation has become the industry norm. The failure of Washington Mutual in 2008 was the largest in the U.S. banking history. It was acquired by JPMorgan Chase & Co. (JPM). The other major acquirers of failed institutions since 2008 include U.S. Bancorp (USB) and BB&T Corporation (BBT).

 
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