Report:
Up to 1,000 banks to fail in next 3-5 years BLOOMBERG NEWS
Tuesday, February 10th 2009, 1:11 AM
As
many as 1,000 U.S. banks may fail in the next three to five
years, almost double the one-year tally at the height of the
saving-and-loan collapse, as losses mount on commercial real-estate
loans, RBC Capital Markets analysts said.
Most of the failures will probably occur at banks with less
than $2 billion in assets as their commercial customers default,
said Gerard Cassidy, an analyst at RBC, in an interview today.
“There are billions of dollars of losses embedded in
the system, and the system has to flush them out,” Cassidy
said. “The people that are going to take the losses
are the taxpayers and bank stockholders, and if regulators
say there won’t be much loss to taxpayers, they will
be lying.”
Regulators are taking steps to help lenders avoid losses
as President Barack Obama’s administration readies a
rescue package that may include guarantees for toxic assets,
according to people familiar with the plan. The Federal
Deposit Insurance Corp. closed nine banks so far this year
after shutting 25 in 2008 and identified 171 “problem”
institutions as of the third quarter.
The FDIC has already raised the estimate for the cost of
U.S. bank failures through 2013 after fourth-quarter financial
reports from banks signaled possible additional losses to
the deposit insurance fund. The agency said failures through
2013 may cost more than the $40 billion estimated in October.
The U.S. seized 534 lenders in 1989, including 327 saving-
and-loan associations, during the peak of a crisis among thrift
institutions, FDIC data showed.
The FDIC on Dec. 16 doubled premiums it charges banks to
replenish its reserves, which totaled $34.6 billion as of
the third quarter. The agency and Congress are taking steps
to offer safeguards for the banking industry,
including more than tripling the FDIC’s borrowing authority
from the Treasury Department, to $100 billion, to support
consumers against bank failures.
“The sooner the bank regulators can shut down the troubled
banks, the faster the industry will get back on its feet,”
Cassidy said in the report. “We are nowhere near the
end of this down leg in the current credit cycle.”
Cassidy had previously said as many as 300 banks would fail
in the next three years. RBC bases its estimates on discussions
with industry experts and by calculating the loans for which
banks aren’t receiving interest as a
percentage of tangible capital and reserves for losses, Cassidy
said. RBC calls it the “Texas ratio” because it
was crafted during the state’s 1980s bank crisis. RBS
said lenders that exceed 100 percent are at risk of collapse.