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Saturday, April 16, 2011

Six bank failures

Yesterday the FDIC shut down six banks with around $4.2 billion in assets between them. But I thought one thing was a bit peculiar with regards to the seizure of Superior Bank in Birmingham, Alabama.

"As of December 31, 2010, Superior Bank had approximately $3.0 billion in total assets and $2.7 billion in total deposits. ... The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $259.6 million."

It seems as if the bigger the bank is, the smaller the cost to the FDIC reported. In this case, the losses were only 8.7 percent, much lower than the 22.5 percent average for bank closures in 2010 and 2011. This would appear to suggest that the losses are being disguised in the assets being acquired by the new bank, which in this case is "Superior Bank, N.A., Birmingham, Alabama, a newly-chartered bank subsidiary of Community Bancorp LLC, Houston, Texas".

I've also noticed that both the numbers of banks seized and percent of estimated bad assets appear to be shrinking. The 34 banks seized so far in 2011 averaged about 34.4 percent bad assets versus 42.1 percent for the 157 banks seized in 2010 and 41.1 percent for the 140 seized in 2009. This would appear to indicate a material improvement, although it is a fairly modest one considering that the fair financial winds of government spending and quantitative easing appear to be drawing to a close.

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