USB US Bancorp

Last Friday, U.S. regulators shuttered Doraville, Georgia-based Global Commerce Bank, taking the number of failed banks thus far in 2012 to 12. This follows 92 bank failures in 2011, 157 in 2010, 140 in 2009 and 25 in 2008.

While the financials of a few large banks continue to stabilize on the back of an economic recovery, the industry is still on shaky ground. The sector presents a picture similar to that of 2011, with nagging issues like depressed home prices along with still-high loan defaults and unemployment levels troubling such institutions.

The lingering economic uncertainty and its effects also weigh on many banks. The need to absorb bad loans offered during the credit explosion has made these banks susceptible to severe problems.

Global Commerce Bank had total assets of about $143.7 million and total deposits of about $116.8 million as of December 31, 2011. 

This failure represents another blow to the deposit insurance fund (DIF), meant for protecting customer accounts.

The Federal Deposit Insurance Corporation (FDIC) insures deposits in 7,359 banks and savings associations in the country as well as promotes their safety and soundness. When a bank fails, the agency reimburses customer deposits of up to $250,000 per account.

Though the FDIC has managed to shore up its deposit insurance fund over the last few quarters, the ongoing bank failures have kept it under pressure. However, as of December 31, 2011, the fund was in surplus for the third straight quarter.

Also, the balance increased to $9.2 billion from $7.8 billion at the end of the prior quarter. The improvement in fund balance was aided by a moderate pace of bank failures and assessment revenue.

The failure of Global Commerce Bankis expected to deal a blow of about $17.9 million to the deposit insurance fund.

Doraville, Georgia-based Metro City Bank has agreed to assume all the deposits and $79.0 million assets of Global Commerce Bank.

The number of banks on FDIC’s list of problem institutions saw a sharp decline for the third straight quarter to 813 in the October-December period from 844 in the preceding sequential period. As of the end of 2010, there were 884 banks in the problem list.

Increasing loan losses on commercial real estate could trigger many more bank failures in the upcoming years. However, considering the moderate pace of bank failures, the number in 2012 is not expected to exceed the 2011 tally. From 2011 through 2015, bank failures are estimated to cost the FDIC about $19 billion.

With so many bank failures, consolidation has become the industry trend. For most of the failed banks, the FDIC enters into a purchase agreement with healthy institutions.

When Washington Mutual collapsed in 2008 (branded as the largest bank failure in the U.S. 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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