Number of Banks At Risk of Failing Goes Down

According to The Dealmaker’s Journal, the list of banks in danger of failing has gotten smaller. Bank observers are speculating whether the failures have decreased because of election year politics, the industry is becoming more robust, regulatory agencies have changed leadership, or other factors.

Regulators tend to shut down banks with low capital, and last month alone, data analysis firm Trepp reported a rise in bank failures. That said, the rate of failures has gone down in the last few years. Last year 51 banks failed. By April for this year, 10 banks had failed. However, 651 institutions are still on the Federal Deposit Insurance Corp’s list of problem banks.

Over just the course of a quarter following exams and credit writedowns, there have been banks that have gone from appearing well capitalized to seized. This was especially true 2009 and 2010 when certain bankers were reluctant to admit that credit quality had gone down until regulators forced them to lower the value of their portfolios.

During times when there aren’t many banks with capital ratios at levels that are critically low, the risk of failures become less likely. Granted, this might pose a for healthy banks wanting to buy inexpensive franchises, but also it makes it easier for them to buy a bank that, although beleaguered, is also somewhat stable and may be able to enhance their business.

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Bucket of Likely Bank Failures Nearly Empty, American Banker, May 10, 2013

Federal Deposit Insurance Corp.

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